<PAGE>

================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

                                   (Mark One)

           /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                                       OR

          / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER: 000-27265

                      INTERNAP NETWORK SERVICES CORPORATION
             (Exact name of registrant as specified in its charter)

                WASHINGTON                           91-1896926
     (State or other jurisdiction of      (IRS Employer identification No.)
      incorporation or organization)


                          601 UNION STREET, SUITE 1000,
                            SEATTLE, WASHINGTON 98101
                    (Address of principal executive offices)

                                 (206) 441-8800
              (Registrant's telephone number, including area code)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                           Yes    X    No
                                -----      -----

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: 148,191,001 SHARES OF COMMON
STOCK, $.001 PAR VALUE, OUTSTANDING AS OF SEPTEMBER 30, 2000.
================================================================================


                                       1.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000
                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                                                        Page
                                                                                                                        ----

 PART I.  FINANCIAL INFORMATION

<S>                                                                                                                     <C>

          Item 1.        Financial Statements .............................................................               3

                         Condensed Consolidated Balance Sheets
                              September 30, 2000 and December 31, 1999.....................................               3

                         Condensed Consolidated Statement of Operations
                              Three and nine months ended September 30, 2000 and 1999......................               4

                         Condensed Consolidated Statement of Cash Flows
                              Nine months ended September 30, 2000 and 1999................................               5

                         Condensed Consolidated Statement of Shareholders' Equity and Comprehensive Loss
                              Nine months ended September 30, 2000.........................................               6

                         Notes to Condensed Consolidated Financial Statements..............................               7


          Item 2.        Management's Discussion and Analysis of Financial Condition and Results of
                         Operations........................................................................              13


          Item 3.        Quantitative and Qualitative Disclosures About Market Risk........................              17


 PART II. OTHER INFORMATION


          Item 2.        Changes in Securities and Use of Proceeds.........................................              26


          Item 6.        Exhibits and Reports on Form 8-K..................................................              26

          Signatures.......................................................................................              27
</TABLE>



                                       2.

<PAGE>


                          PART I. FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                      INTERNAP NETWORK SERVICES CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Unaudited, in thousands)


<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,       DECEMBER 31,
                                                                                    2000                1999
                                                                                -------------       -------------

<S>                                                                             <C>                 <C>
                                   ASSETS

Current assets:
     Cash and cash equivalents...........................................         $  79,904           $ 155,184
     Short-term investments..............................................           102,355              50,168
     Investment income receivable........................................             2,316                 591
     Accounts receivable, net of allowance of $764 and $206, respectively            14,668               4,084
     Prepaid expenses and other assets...................................             2,950                 553
                                                                                -------------       -------------
         Total current assets............................................           202,193             210,580
Property and equipment, net..............................................           118,172              28,811
Patents and trademarks, net..............................................               193                 142
Restricted cash..........................................................            10,355                 ---
Investments..............................................................            62,001               5,050
Goodwill and other intangible assets, net................................           298,900                 ---
Deposits and other assets,  net..........................................             5,414                 963
                                                                                -------------       -------------
         Total assets....................................................         $ 697,228           $ 245,546
                                                                                =============       =============

                    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable....................................................         $  17,853           $   7,278
     Accrued liabilities ................................................             7,215               4,209
     Accrued acquisition costs...........................................             8,441                 ---
     Deferred revenue....................................................             3,675                  22
     Notes payable, current portion......................................             2,212               1,021
     Line of credit......................................................             1,525               1,525
     Capital lease obligations, current portion..........................            14,635               6,613
                                                                                -------------       -------------
         Total current liabilities.......................................            55,556              20,668
Deferred revenue.........................................................            11,231                 ---
Notes payable, less current portion......................................             3,629               2,861

Capital lease obligations, less current portion..........................            20,988              11,517
                                                                                -------------       -------------
         Total liabilities...............................................            91,404              35,046
                                                                                -------------       -------------
Commitments and contingencies
Shareholders' equity:
     Common stock, $0.001 par value, 500,000 shares authorized; 148,191
       and 132,089 shares issued and outstanding, respectively...........               148                 132
     Additional paid-in capital..........................................           784,885             287,054
     Deferred stock compensation.........................................           (14,117)            (17,228)
     Accumulated deficit.................................................          (177,690)            (59,458)
     Accumulated other comprehensive income..............................            12,598                 ---
                                                                                -------------       -------------
         Total shareholders' equity......................................           605,824             210,500
                                                                                -------------       -------------
         Total liabilities and shareholders' equity......................         $ 697,228           $ 245,546
                                                                                =============       =============
</TABLE>



The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                       3.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               (Unaudited, in thousands, except per share amounts)



<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                         SEPTEMBER 30,              SEPTEMBER 30,
                                                                  ------------------------     ------------------------
                                                                      2000           1999          2000           1999
                                                                  ---------      ---------     ---------      ---------

<S>                                                               <C>            <C>           <C>             <C>
Revenues........................................................  $  20,220      $   3,613     $  42,758       $  7,022
Costs and expenses:
     Cost of network and customer support.......................     26,935          8,428        62,736         16,335
     Product development........................................      4,107          1,053         7,548          2,448
     Sales and marketing........................................      8,889          4,691        24,578         10,560
     General and administrative.................................     11,168          2,216        20,862          5,121
     Amortization of goodwill and other intangible assets.......     26,183            ---        28,340            ---
     Amortization of deferred stock compensation................      2,625          2,505         8,249          4,292
     Acquired in-process research and development...............     18,000            ---        18,000            ---
                                                                  ---------      ---------     ---------      ---------
         Total operating costs and expenses.....................     97,907         18,893       170,313         38,756
                                                                  ---------      ---------     ---------      ---------
Loss from operations............................................    (77,687)       (15,280)     (127,555)       (31,734)
Other income (expense):
     Interest income............................................      3,900             93        11,238            543
     Interest and financing expense.............................     (1,025)          (640)       (1,915)          (787)
                                                                  ---------      ---------     ---------      ---------
         Net loss...............................................  $ (74,812)     $ (15,827)    $(118,232)     $ (31,978)
                                                                  =========      =========     =========      =========

Basic and diluted net loss per share............................  $   (0.51)     $   (1.92)    $   (0.85)     $   (4.39)
                                                                  =========      =========     =========      =========

Weighted average shares used in computing basic and diluted net
     loss per share.............................................    146,794          8,246       139,315          7,291
                                                                  =========      =========     =========      =========
</TABLE>



         The accompanying notes are an integral part of these condensed
consolidated financial statements.


                                       4.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                            (Unaudited, in thousands)

<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                          SEPTEMBER 30,
                                                                                   -----------------------
                                                                                      2000         1999
                                                                                   ----------   ----------
<S>                                                                                <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss ..................................................................   $(118,232)   $ (31,978)
     Adjustments to reconcile net loss to net cash used in operating activities:
         Depreciation and amortization .........................................      39,370        2,854
         Non-cash interest and financing expense ...............................         ---          549
         Provision for doubtful accounts .......................................         627           88
         Non-cash compensation and warrant expense .............................       8,534        4,292
         Acquired in-process research and development ..........................      18,000          ---
     Changes in operating assets and liabilities:
         Accounts receivable ...................................................     (10,655)      (1,931)
         Investment income receivable ..........................................      (1,724)         ---
         Prepaid expenses, deposits and other assets ...........................      (4,186)        (705)
         Accounts payable ......................................................      (2,819)       3,014
         Deferred revenue ......................................................       4,140         (275)
         Accrued liabilities ...................................................        (958)         565
                                                                                   ----------   ----------
              Net cash used in operating activities ............................     (67,903)     (23,527)
                                                                                   ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchases of property and equipment .......................................     (37,547)      (7,030)
     Proceeds from disposal of property and equipment ..........................         167          ---
     Investment in CO Space, net of cash acquired ..............................      (9,984)         ---
     Investment in VPNX.com, net of cash acquired ..............................       2,655          ---
     Collection of full recourse notes receivable for outstanding
         common stock ..........................................................         642          ---
     Purchase of investments ...................................................    (160,377)      (9,995)
     Redemption of investments .................................................      63,838        9,995
     Payments for patents and trademarks .......................................         (42)         (86)
                                                                                   ----------   ----------
              Net cash used in investing activities ............................    (140,648)      (7,116)
                                                                                   ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from shareholder loan ............................................         ---        1,100
     Repayment of shareholder loan .............................................         ---       (1,100)
     Proceeds from notes payable ...............................................         ---        1,766
     Principal payments on notes payable .......................................        (909)         (15)
     Net increase (decrease) in line of credit .................................         ---          875
     Payments on capital lease obligations .....................................      (6,561)      (1,642)
     Proceeds from equipment leaseback financing ...............................         717          428
     Restriction of cash .......................................................     (10,355)      (1,677)
     Proceeds from issuance of and exercise of warrants to purchase
         capital stock, net of issuance costs ..................................         444          121
     Proceeds from exercise of stock options ...................................       4,728           71
     Proceeds from issuance of common stock ....................................     145,207       31,268
                                                                                   ----------   ----------
              Net cash provided by financing activities ........................     133,271       31,195
                                                                                   ----------   ----------
     Net increase (decrease) in cash and cash equivalents ......................     (75,280)         552
     Cash and cash equivalents at beginning of period ..........................     155,184          275
                                                                                   ----------   ----------
     Cash and cash equivalents at end of period ................................   $  79,904    $     827
                                                                                   ==========   ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for interest, net of amounts capitalized ........................   $   1,840    $     238
                                                                                   ==========   ==========
     Purchase of property and equipment financed with capital leases ...........   $  23,444    $  10,105
                                                                                   ==========   ==========
     Purchase of property and equipment included in accounts payable ...........   $   2,074    $   1,153
                                                                                   ==========   ==========
     Subscription receivable on sale of equity .................................   $     ---    $ 176,700
                                                                                   ==========   ==========
     Cost of equity proceeds included in accounts payable ......................   $     ---    $     442
                                                                                   ==========   ==========
     Value ascribed to warrants ................................................   $     ---    $     536
                                                                                   ==========   ==========
</TABLE>


The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                       5.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
                      NINE MONTHS ENDED SEPTEMBER 30, 2000
                            (Unaudited, in thousands)



<TABLE>
<CAPTION>
                                    COMMON STOCK
                                 -----------------                                           ACCUMULATED
                                                      ADDITIONAL   DEFERRED                 ITEMS OF OTHER
                                             PAR       PAID-IN      STOCK      ACCUMULATED  COMPREHENSIVE             COMPREHENSIVE
                                 SHARES     VALUE      CAPITAL   COMPENSATION    DEFICIT       INCOME       TOTAL           LOSS
                                 -------    ------    ---------- ------------  -----------  -------------- -------    -------------
<S>                              <C>        <C>       <C>         <C>          <C>          <C>            <C>        <C>
Balances, December 31, 1999..    132,089    $  132    $287,054    $(17,228)    $ (59,458)                  $210,500
Issuance of common stock, net
  of costs of proceeds.......      3,450         3     141,967                                              141,970
Amortization of deferred
  stock compensation.........                                        8,249                                    8,249
Exercise of employee stock
  options....................      3,098         3       4,725                                                4,728
Issuance of employee stock
  purchase plan shares.......        350                 3,236                                                3,236
Exercise of warrants to
  purchase common stock......        296         1         443                                                  444
Common stock issued for the
  acquisition of CO Space....      6,881         7     254,944                                              254,951
Common stock issued and
  deferred stock compensation
  recorded for the
  acquisition of VPNX.com....      2,027         2      92,230      (5,138)                                  87,094
Issuance of warrants to
  purchase common stock......                              286                                                  286
Net loss.....................                                                   (118,232)                  (118,232)    $(118,232)
Unrealized gain on
  investments................                                                                $  12,598       12,598        12,598
                                --------    ------    --------    --------     ---------     ---------     --------     ---------

Balances, September 30, 2000.    148,191    $  148    $784,885    $(14,117)    $(177,690)    $  12,598     $605,824     $(105,634)
                                ========    ======    ========    ========     =========     =========     ========     =========
</TABLE>


The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                       6.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

         The unaudited condensed consolidated financial statements have been
prepared by InterNAP Network Services Corporation (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission and include
all the accounts of the Company and its wholly owned subsidiaries. Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the unaudited condensed consolidated financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Company's financial position at September 30, 2000,
its operating results for the three and nine months ended September 30, 2000 and
1999, its cash flows for the nine months ended September 30, 2000 and 1999 and
changes in its shareholders' equity for the nine months ended September 30,
2000. The balance sheet at December 31, 1999 has been derived from audited
financial statements as of that date. These financial statements and the related
notes should be read in conjunction with the Company's financial statements and
notes thereto contained in the Company's annual report on Form 10-K and the
Company's registration statement on Form S-1 (File No. 333-95503) filed with the
Securities and Exchange Commission.

         In December 1999, the Company incorporated a wholly owned subsidiary in
the United Kingdom, InterNAP Network Services U.K. Limited and in June 2000, the
Company incorporated a wholly owned subsidiary in the Netherlands, InterNAP
Network Services B.V. The condensed consolidated financial statements of the
Company include all activity of these subsidiaries. Foreign exchange gains and
losses have not been material to date.

         On January 7, 2000, the Company paid a 100% share dividend to
shareholders of record as of December 27, 1999. Accordingly, the number of
shares disclosed in the financial statements and related notes have been
adjusted to reflect the stock dividend for all periods presented.

         The results of operations for the three and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the future quarters.

2. BUSINESS COMBINATIONS:

         On June 20, 2000, the Company completed its acquisition of CO Space,
Inc. ("CO Space"). The acquisition was recorded using the purchase method of
accounting under Accounting Principle Board Opinion No. 16 ("APB 16"). The
aggregate purchase price of the acquired company, plus related charges, was
approximately $275,307,000 and was comprised of the Company's common stock,
cash, acquisition costs and assumed options to purchase common stock. The 
Company issued approximately 6,881,000 shares of common stock and assumed 
options to purchase CO Space common stock that were subsequently converted into
options to purchase approximately 323,000 shares of the Company's common stock 
to effect the transaction. Results of operations of CO Space have been included
in the financial results of the Company from the closing date of the
transaction forward.


<TABLE>
<CAPTION>
         Supplemental disclosure of cash flow information for CO Space is as follows (in thousands):

<S>                                                                                        <C>
        Cash acquired....................................................................  $       3,488
        Accounts receivable..............................................................            546
        Property and equipment...........................................................         39,105
        Full recourse notes receivable for outstanding common stock......................            642
        Other tangible assets............................................................          1,887
                                                                                           -------------


                                       7.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


             Tangible assets acquired....................................................         45,668
                                                                                           -------------
        Customer relationships...........................................................          1,800
        Completed real estate leases.....................................................         19,300
        Trade name and trademarks........................................................          2,800
        Workforce in place...............................................................          2,000
        Goodwill.........................................................................        232,948
                                                                                           -------------
             Intangible assets acquired..................................................        258,848
                                                                                           -------------
                  Total assets acquired..................................................  $     304,516
                                                                                           =============

        Cash paid........................................................................  $       7,200
        Acquisition expenses incurred....................................................         16,658
        Accounts payable assumed.........................................................         11,305
        Accrued liabilities assumed......................................................          3,434
        Deferred revenue assumed.........................................................          8,992
        Notes and capital leases assumed.................................................          1,990
        Value of stock and options issued................................................        254,937
                                                                                           -------------
             Total cash paid, liabilities assumed, common stock issued and options
             assumed.....................................................................  $     304,516
                                                                                           =============
</TABLE>


         On July 31, 2000, the Company completed its acquisition of VPNX.com,
Inc., formerly Switchsoft Systems, Inc. ("VPNX"). The acquisition was recorded
using the purchase method of accounting under APB 16. The aggregate purchase
price of the acquired company, plus related charges, was approximately
$87,947,000 and was comprised of the Company's common stock, cash, acquisition
costs and assumed options to purchase common stock. The Company issued
approximately 2,027,000 shares of common stock and assumed options to purchase
VPNX common stock that were subsequently converted into options to purchase
approximately 268,000 shares of the Company's common stock to effect the
transaction. Results of operations of VPNX have been included in the financial
results of the Company from the closing date of the transaction forward.


<TABLE>
<CAPTION>
<S>                                                                                        <C>
         Supplemental disclosure of cash flow information for VPNX is as follows (in thousands):

        Cash acquired....................................................................  $       3,070
        Property and equipment...........................................................            834
        Other tangible assets............................................................            798
                                                                                           -------------
             Tangible assets acquired....................................................          4,702
                                                                                           -------------
        Developed technology.............................................................          3,400
        Acquired in-process research and development.....................................         18,000
        Covenants not to compete.........................................................         14,100
        Workforce in place...............................................................          1,000
        Goodwill.........................................................................         49,920
                                                                                           -------------
             Intangible assets acquired..................................................         86,420
                                                                                           -------------
                 Total assets acquired...................................................  $      91,122
                                                                                           =============

        Acquisition expenses incurred....................................................            850
        Accrued liabilities assumed......................................................            655
        Deferred revenue assumed.........................................................          1,751
        Notes and capital leases assumed.................................................            772
        Value of stock and options issued................................................         92,232
        Deferred stock compensation......................................................         (5,138)
                                                                                           -------------
             Total cash paid, liabilities assumed,  common stock issued, and
                 options assumed.........................................................  $      91,122
                                                                                           =============
</TABLE>



         In accordance with APB 16, all identifiable assets were assigned a
portion of the purchase price of the acquired companies on the basis of their
respective fair values. Identifiable intangible assets and goodwill are included
in "Goodwill and other intangible assets, net" on the accompanying consolidated
balance sheets and are amortized over their average useful lives of three years.
Intangible assets were identified and valued by considering the Company's
intended use of acquired assets, and analysis of data concerning products,
technologies, markets, historical financial performance and underlying
assumptions of future performance. The economic and competitive environments in
which the Company and the acquired companies operate were also considered in the
valuation analysis. The amount allocated to acquired in-process research and 
development is related to technology acquired from VPNX that was written
off immediately subsequent to the acquisition because the in-process
technology had not reached technological feasibility and had no probable
alternative future use. Expected future cash flows associated with in-process
technology were discounted considering risks and uncertainties related to the
viability of and potential changes in future target markets and to the
completion of the products that will ultimately be marketed by the Company.
This analysis resulted in an allocation of $18 million to acquired in-process
research and development expense.

         The pro forma consolidated financial information for the nine months
ended September 30, 2000 and 1999, determined as if the acquisitions of CO Space
and VPNX had occurred on January 1 of each year, would have resulted in revenues
of approximately $45,042,000 and $10,644,000, net loss of approximately
$203,053,000 and $149,502,000 and basic and diluted loss per share of
approximately $(1.40) and $(9.23), respectively. This unaudited pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the results of operations in future periods or results that would
have been achieved had the Company, CO Space and VPNX been combined during the
specified periods.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets and liabilities in the financial statements and
disclosure of contingent assets and liabilities at the date of the financial
statements. Examples of estimates subject to possible revision


                                       8.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

based upon the outcome of future events include depreciation of property and
equipment, income tax liabilities, the valuation allowance against the deferred
tax assets, the allowance for doubtful accounts, the identification of
intangible assets and the related amortization periods and the estimate of
acquired in-process research and development expense. Actual results could
differ from those estimates.

         CASH AND CASH EQUIVALENTS

         The Company generally considers any highly liquid investments purchased
with an original or remaining maturity of three months or less at the date of
purchase to be cash equivalents.

         The Company invests its cash and cash equivalents in deposits with
three financial institutions that may, at times, exceed federally insured
limits. Management believes that the risk of loss is minimal. To date, the
Company has not experienced any losses related to temporary cash investments. At
September 30, 2000, the Company had placed approximately $10,355,000 in a
restricted cash account to collateralize letters of credit with financial
institutions.

         INVESTMENTS

        The Company classifies its marketable securities at the date of
acquisition into categories in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Currently, the Company classifies its marketable
securities as available-for-sale, which are reported at fair market value with
the related unrealized gains and losses included in shareholders' equity.
Realized gains and losses and declines in value of securities judged to be other
than temporary are included in other income (expense). Interest and dividends on
all securities are included in interest income. The fair value of the Company's
marketable securities is based on quoted market prices. At September 30, 2000,
marketable securities consisted of commercial paper and government securities.

         The Company accounts for investments in equity securities without
readily determinable fair values at cost. The Company did not own 20% of the
voting stock or exert significant influence over any of its cost basis
investments as of September 30, 2000. Realized gains and losses and declines in
value of securities judged to be other than temporary are included in other
income (expense).

         NET LOSS PER SHARE

         Basic and diluted net loss per share has been computed using the
weighted average number of shares of common stock outstanding during the period,
less the weighted average number of unvested shares of common stock issued that
are subject to repurchase. The Company has excluded all convertible preferred
stock, warrants, outstanding options to purchase common stock and shares subject
to repurchase from the calculation of diluted net loss per share, as such
securities are antidilutive for all periods presented. Basic and diluted net
loss per share for the three and nine months ended September 30, 2000 and 1999
are calculated as follows (in thousands, except per share amounts):


<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED              NINE MONTHS ENDED
                                                             SEPTEMBER 30,                  SEPTEMBER 30,
                                                     -----------------------------  ----------------------------
                                                          2000           1999           2000            1999
                                                     -------------- --------------  -------------- -------------
                                                              (unaudited)                    (unaudited)
<S>                                                  <C>             <C>            <C>            <C>
Net loss.............................................$    (74,812)   $    (15,827)  $   (118,232)  $    (31,978)
                                                     ============    ============   ============   ============
Basic and diluted:
    Weighted-average shares of common stock
       outstanding used in computing basic and
       diluted net loss per share....................     146,794           8,246        139,315          7,291
                                                     ============    ============   ============   ============
    Basic and diluted net loss per share.............$      (0.51)   $      (1.92)  $      (0.85)  $      (4.39)
                                                     ============    ============   ============   ============
Antidilutive securities not included in diluted net
loss per share calculation:
       Convertible preferred stock...................         ---          98,954            ---         98,954
       Options to purchase common stock..............      23,657          15,200         23,657         15,200
       Warrants to purchase common and
         Series B preferred stock....................       1,626           1,386          1,626          1,386
       Unvested shares of common stock
         subject to repurchase.......................         125             226            125            226
                                                     ------------    ------------   ------------   ------------
                                                           25,408         115,766         25,408        115,766
                                                     ============    ============   ============   ============
</TABLE>



                                       9.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. PROPERTY AND EQUIPMENT:

         Property and equipment consists of the following (in thousands):


<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30,     DECEMBER 31,
                                                                                 2000              1999
                                                                             -------------     ------------
                                                                              (unaudited)
<S>                                                                          <C>                  <C>
Network equipment............................................................$  28,798            $   4,665
Network equipment under capital lease........................................   43,111               20,095
Furniture, equipment and software............................................   21,346                6,717
Furniture, equipment and software under capital lease........................    1,592                1,164
Leasehold improvements.......................................................   40,490                2,009
                                                                             -------------     ------------
                                                                               135,337               34,650
Less:  Accumulated depreciation and amortization.............................  (17,165)              (5,839)
                                                                             -------------     ------------
Property and equipment, net..................................................$ 118,172            $  28,811
                                                                             =============     ============
</TABLE>



5. INVESTMENTS:

         On February 22, 2000, pursuant to an investment agreement, the Company
purchased 588,236 shares of Aventail Corporation ("Aventail") Series D preferred
stock at $10.20 per share for a total cash investment of $6,000,007. The Series
D preferred stock is convertible to common stock at a ratio of one share of
preferred stock to one share of common stock, subject to adjustment for certain
equity transactions. Additionally, the Company and Aventail entered into a joint
marketing agreement which, among other things, granted the Company certain
limited exclusive rights to sell Aventail's managed extranet service and granted
Aventail certain rights to sell the Company's services. In return, the Company
committed to either sell Aventail services or pay Aventail, or a combination of
both, which would result in Aventail's recognition of $3,000,000 of revenue over
a two-year period. The Company's investment in Aventail is recorded at cost.

         Pursuant to an investment agreement among the Company, Ledcor Limited
Partnership, Worldwide Fiber Holdings Ltd. and 360networks, Inc.
("360networks"), on April 17, 2000, the Company purchased 374,182 shares of
360networks Class A Non-Voting Stock at $5.00 per share and, on April 26, 2000,
the Company purchased 1,122,545 shares of 360networks Class A Subordinate Voting
Stock at $13.23 per share. The total cash investment was $16,722,180.
Additionally, the Company and 360networks entered into a letter of intent to
negotiate a strategic agreement that would provide the Company with long-haul
fiber-optic bandwidth capacity and provide 360networks with the Company's
Internet connectivity services. The Company's investment in 360networks is
recorded at fair market value.

         On August 20, 2000, the Company entered into a credit facility with
Speedera Networks ("Speedera") which allows Speedera to borrow up to $6,000,000
from the Company. The credit facility bears interest at the prime rate plus 3% 
on the date of each draw and matures on December 31, 2000. Upon maturity, 
Speedera has the option of repaying all principal and accrued interest or 
converting the amount due into Speedera preferred stock. As of September 30, 
2000, the Company has included $3,000,000 in non-current investments related to
Speedera's borrowings under the credit facility. Subsequent to September 30, 
2000, Speedera borrowed the remaining $3,000,000 under the credit facility.

6. ACCRUED LIABILITIES:

         Accrued liabilities consist of the following (in thousands):


<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,     DECEMBER 31,
                                                                          2000             1999
                                                                     -------------     ------------
                                                                      (unaudited)
<S>                                                                  <C>                <C>
Compensation payable...............................................    $   4,178         $   2,729
Private placement fee..............................................          ---             1,000
Other..............................................................        3,037               480
                                                                     -------------     ------------
                                                                       $   7,215         $   4,209
                                                                     =============     ============
</TABLE>



                                      10.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. FINANCING ARRANGEMENTS:

         During 1999, the Company entered into an equipment financing
arrangement with a financial institution allowing the Company to borrow up to
$5,000,000 for the purchase of property and equipment. The equipment financing
arrangement includes sublimits of $3,500,000 for equipment costs and $1,500,000
for the acquisition of software, service point and other equipment costs. Loans
under the $3,500,000 sublimit require monthly principal and interest payments
over a term of 48 months. This facility bears interest at 7.5% plus an index
rate based on the yield of 4-year U.S. Treasury Notes. This rate was 13.89% at
September 30, 2000. Loans under the $1,500,000 sublimit require monthly
principal and interest payments over a term of 36 months. This facility bears
interest at 7.9% plus an index rate based on the yield of 3-year U.S. Treasury
Notes. This rate was 13.98% at September 30, 2000. Borrowings under each
sublimit must be made prior to May 1, 2000. During March 2000, the Company
borrowed an additional $594,000 for equipment purchases. As of September 30,
2000, the Company's remaining obligation related to this arrangement totaled 
approximately $3,665,000.

         On April 10, 2000, the Company entered into an agreement with a
financial institution (the "Financing Agreement"), which will provide the
Company up to $7,500,000 in funding for the purpose of financing capital
expenditures. The Financing Agreement has a 36 month term and calls for equal
payments of accrued interest plus 2.1% of the original principal balance over
the term of the agreement with a balloon payment for the residual 27% of
principal upon maturity. Interest is at the London Inter Bank Offered Rate plus
3.70% (10.32% at September 30, 2000) and is adjusted monthly. In the event the
Company's cash and cash equivalent balance is equal to or less than $60,000,000
at the end of any quarter, the Company will be required to provide an
irrevocable renewable letter of credit in an amount equal to the balance of the
loan. There were no amounts outstanding under the Financing Agreement at
September 30, 2000.

         As part of the acquisition of CO Space on June 20, 2000, the Company
assumed an equipment financing agreement (the "Equipment Financing Agreement")
with a financial institution, which provides up to $2,000,000 for the purchase
of equipment. The Equipment Financing Agreement was signed on July 29, 1999 and
has a 42 month term, with a commitment termination date of June 30, 2000. The
interest rate is 3.25% over the yield of a 42-month U. S. Treasury Note on the
day of funding. There are two loan schedules under the Equipment Financing
Agreement with interest rates of 8.99% and 9.12%. The Equipment Financing
Agreement calls for equal monthly principal and interest payments over the term
of the Equipment Financing Agreement with a final payment of 8.5% of the
original loan amount. As of September 30, 2000, the Company had outstanding
borrowings of $1,500,000 under this Equipment Financing Agreement.

         On July 31, 2000, the Company assumed a senior loan and security
agreement (the "Security Agreement") in connection with the acquisition of VPNX.
The Security Agreement provides up to $2,000,000 for the purchase of equipment
and requires 36 equal monthly payments of principal and interest. The interest
rates on the existing notes range from 6.59% to 8.03%, and each note has a final
payment of 15% of the original balance. This final payment may be extended for
an additional 12 months at a monthly rate of 1.5%. The commitment termination
date under the Security Agreement was August 31, 2000. Outstanding borrowings at
September 30, 2000 were $685,000.

8. COMMITMENTS AND CONTINGENCIES:

         The Company has entered into service commitment contracts with Internet
backbone service providers to provide interconnection services. Monthly fees are
calculated on a usage basis subject to aggregate minimum payments of $37,000,000
through April 2003.

         In connection with the acquisition of CO Space, the Company assumed
lease commitments with terms of 10 to 20 years which will require payments
totaling approximately $167,569,000 through 2020.

9. SHAREHOLDERS' EQUITY:

         On April 6, 2000, 8,625,000 shares of the Company's common stock were
sold in a public offering at a price of $43.50 per share. Of these shares,
3,450,000 were sold by the Company and 5,175,000 shares were sold by selling
shareholders. The Company did not receive any of the proceeds from the sale of
shares of common stock by the selling shareholders. The proceeds to the Company
from the offering were $142,900,000, net of underwriting discounts and
commissions of $7,100,000.

         On August 2, 2000, the Company issued 20,000 warrants to an executive
recruiting firm. The fair value of these warrants was estimated to be
approximately $286,000 based upon the Black-Scholes option pricing model and was
charged to expense.


                                      11.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. STOCK BASED COMPENSATION PLANS:

         The Company's stock-based compensation plans include the Amended 1999
Equity Incentive Plan (the "1999 Plan"), the 1998 Stock Option/Stock Issuance
Plan (the "1998 Plan"), the 1999 Non-Employee Directors' Stock Option Plan (the
"Director Plan"), the Employee Stock Purchase Plan (the "ESPP") and the 2000
Non-Officer Equity Incentive Plan (the "2000 Plan"). The 2000 Plan initially
authorized the issuance of 1,000,000 shares of the Company's common stock. On
July 18, 2000, the board of directors increased the shares reserved under the
2000 Plan to 4,500,000. Under the 2000 Plan, the Company may grant stock options
only to employees of the Company who are not officers or directors. Options
granted under the 2000 Plan are not intended by the Company to qualify as
incentive stock options under the Internal Revenue Code. Otherwise, options
granted under the 2000 Plan generally will be subject to the same terms and
conditions as options granted under the Company's 1999 Plan. During the nine
months ended September 30, 2000, the Company granted 11,522,000 options to
purchase common stock pursuant to all stock option plans, and 3,098,000 shares
of common stock were issued upon exercise of stock options.

         On June 19, 2000, pursuant to the terms of the 1999 Plan, the number of
shares reserved for the grant of stock options under the 1999 Plan was increased
by 4,831,738 shares. On July 24, 2000, pursuant to the terms of the ESPP, the
number of shares reserved for the grant of stock options under the ESPP was
increased by 1,500,000 shares.

         In connection with the acquisition of CO Space, the Company assumed the
CO Space, Inc. 1999 Stock Incentive Plan (the "CO Space Plan"). After applying
the acquisition conversion ratio, the CO Space plan authorizes the issuance of
up to 1,346,840 options to purchase shares of common stock, of which
approximately 323,000 options have been granted to date and approximately
178,000 options were outstanding at September 30, 2000.

         In connection with the acquisition of VPNX, the Company assumed the
Switchsoft Systems, Inc. Founders 1996 Stock Option Plan and the Switchsoft
Systems, Inc. 1997 Stock Option Plan (the "VPNX Plans"). After applying the
acquisition conversion ratio, the VPNX Plans authorize the issuance of up to
307,417 options to purchase shares of common stock, of which approximately
268,000 options have been granted to date and approximately 264,000 options were
outstanding at September 30, 2000. The Company recorded deferred stock
compensation related to the unvested options assumed, totaling $5,135,000, of
which $573,000 was amortized to expense during the three and nine months ended
September 30, 2000.


                                      12.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION


I
TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         Certain statements in this Quarterly Report on Form 10-Q, including,
without limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced by
us described below and elsewhere in this Quarterly Report, and in other
documents we file with the Securities and Exchange Commission.

OVERVIEW

         The Company is a leading provider of fast, reliable and centrally
managed Internet connectivity services targeted at businesses seeking to
maximize the performance of mission-critical Internet-based applications.
Customers connected to one of the Company's connectivity service points have
their data optimally routed to and from destinations on the Internet in a manner
that minimizes the use of congested public network access points and private
peering points. These service points include P-NAP facilities and other points
of presence on the Internet from which we service our customers. The Company's
optimal routing of data traffic over the multiplicity of networks that comprise
the Internet enables higher transmission speeds, lower instances of data loss
and greater quality of service.

         After the Company decides to open a new service point, it enters into a
deployment phase which typically lasts four to six months, during which time the
Company executes the required steps to make the service point commercially ready
for service. Among other things, this usually entails obtaining collocation
space to locate the Company's equipment, entering into agreements with backbone
providers, obtaining local loop connections from local telecommunications
providers, building service points and initiating pre-sales and marketing
activities. Consequently, the Company usually incurs a significant amount of
upfront costs related to making a service point commercially ready for service
prior to generating revenues. Therefore, the Company's results of operations
will be negatively affected during times of service point deployment.

         As of September 30, 2000, the Company has a total of 23 service points
deployed in the Atlanta, Boston (two service points), Chicago, Dallas (two
service points), Denver, Fremont, CA, Houston, Los Angeles, Miami, New York (two
service points), Orange County, CA, Philadelphia, San Diego, San Francisco, San
Jose (two service points), Seattle (three service points) and Washington D.C.
metropolitan areas, and expects to have a total of 28 service points operational
by the end of 2000. In addition, the Company operates four collocation
facilities in Boston, Houston, Jersey City and New York in which it currently
does not have connectivity service points. However, the Company is in the
process of deploying service points into two of these collocation facilities.

         On June 20, 2000, the Company completed its acquisition of CO Space,
Inc. ("CO Space"). The acquisition was recorded using the purchase method of
accounting under APB Opinion No. 16 ("APB 16"). The aggregate purchase price of
the acquired company, plus related charges, was approximately $275.3 million and
was comprised of the Company's common stock, cash, acquisiton costs and
assumed options to purchase common stock. The Company issued approximately 
6.9 million shares of common stock and assumed options to purchase CO Space 
common stock that were subsequently converted into options to purchase 
approximately 323,000 shares of the Company's common stock to effect the 
transaction. Results of operations of CO Space have been included in the 
financial results of the Company from the closing date of the transaction 
forward.

         As a result of the CO Space acquisition, the Company recorded a total
of $258.8 million of intangible assets. The intangible assets are being
amortized to expense over their useful lives, which are estimated to be three
years, resulting in expense of $24.5 million for the nine months ended September
30, 2000.

         On July 31, 2000, the Company completed its acquisition of VPNX.com,
Inc. ("VPNX"). The acquisition was recorded using the purchase method of
accounting under APB 16. The aggregate purchase price of the acquired company,
plus related charges, was approximately $87.9 million and was comprised of the
Company's common stock, cash, acquisition costs and assumed options to purchase
common stock. The Company issued 2.0 million shares of common stock and
assumed options to purchase VPNX common stock that were subsequently converted
into options to purchase approximately 268,000 shares of the Company's common
stock to effect the transaction. Results of operations of VPNX have been
included in the financial results of the Company from the closing date of the
transaction forward.

         As a result of the VPNX acquisition, the Company recorded a total of
$68.4 million of intangible assets. The intangible assets are being amortized to
expense over their useful lives, which are estimated to be three years,
resulting in an expense of $3.8 million for the nine months ended September 30,
2000. The Company also recorded an expense of $18.0 million related to acquired
in-process research and development costs for the three and nine months ended
September 30, 2000. The amount allocated to the acquired in-process research 
and development is related to technology acquired from VPNX that had not yet 
reached technological feasibility and had no alternative future use. The 
value was determined by estimating the net cash flows from the sale of products
resulting from the completion of such projects, and discounting the net cash 
flows back to their present value adjusted for the stage of completion of the 
technologies at the date of acquisition.

                                      13.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

         During the years ended December 31, 1998 and 1999, in connection with
the grant of certain stock options to employees, the Company recorded deferred
stock compensation totaling $25.0 million, representing the difference between
the deemed fair value of the Company's common stock on the date such options
were granted and the exercise price. In connection with the acquisition of VPNX,
the Company recorded deferred stock compensation related to the unvested options
it assumed, totaling $5.1 million. Such amounts are included as a component of
shareholders' equity and are being amortized over the vesting period of the
individual options, generally four years, using an accelerated method as
described in Financial Accounting Standards Board Interpretation No. 28. The
Company recorded amortization of deferred stock compensation in the amount of
$8.2 million for the nine months ended September 30, 2000. At September 30,
2000, the Company had a total of $14.1million remaining to be amortized over the
corresponding vesting periods of the stock options.

RESULTS OF OPERATIONS

         The following table sets forth, as a percentage of total revenues,
selected statement of operations data for the periods indicated:


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                   SEPTEMBER 30,            SEPTEMBER 30,
                                                              -----------------------  -----------------------
                                                                2000          1999          2000        1999
                                                              ----------  -----------  ------------  ---------

<S>                                                            <C>          <C>           <C>           <C>
         Revenues...........................................    100%         100%          100%          100%
                                                              ----------  -----------  ------------  ---------
         Costs and expenses:
              Cost of network and customer support..........    133          233           147           233
              Product development...........................     20           29            18            35
              Sales and marketing...........................     44          130            57           150
              General and administrative....................     55           61            49            73
              Amortization of goodwill and other
                  intangible assets.........................    129          ---            66           ---
              Amortization of deferred stock compensation...     13           69            19            61
              Acquired in-process research and development..     89          ---            42           ---
                                                              ----------  -----------  ------------  ---------
                Total costs and expenses....................    483          522           398           552
                                                              ----------  -----------  ------------  ---------
              Loss from operations..........................   (383)        (422)         (298)         (452)
         Other income (expense):
              Interest income...............................     19            3            26             8
              Interest and financing expense................     (5)         (18)           (4)          (11)
                                                              ----------  -----------  ------------  ---------
              Net loss......................................   (369)%       (437)%        (276)%        (455)%
                                                              ==========  ===========  ============  =========
</TABLE>



NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

         Revenues. Revenues increased 511% from $7.0 million for the nine-month
period ended September 30, 1999 to $42.8 million for the nine-month period ended
September 30, 2000. This increase of $35.8 million was primarily due to
increased Internet connectivity revenues. The increase in Internet connectivity
revenues was primarily attributable to the increased sales at the Company's
existing service points and the deployment of additional service points during
1999 and 2000.

         Costs of Network and Customer Support. Costs of network and customer
support increased 285% from $16.3 million for the nine-month period ended
September 30, 1999 to $62.7 million for the nine-month period ended September
30, 2000. This increase of $46.4 million was primarily due to increased
connectivity costs related to added connections to Internet backbone and
competitive local exchange providers at each service point and to a lesser
extent, additional compensation costs and depreciation expense related to the
equipment at newly deployed service points. Network and customer support costs
as a percentage of total revenues are generally greater than 100% for newly
deployed service points because the Company purchases Internet connectivity
capacity from the backbone providers in advance of securing new customers. The
Company expects these costs to increase in absolute dollars as the Company
deploys additional service points.

         Product Development. Product development costs increased 213% from $2.4
million for the nine-month period ended September 30, 1999 to $7.5 million for
the nine-month period ended September 30, 2000. This increase of $5.1 million
was primarily due to increased compensation costs. The Company expects product
development costs to increase in absolute dollars for the foreseeable future.

         Sales and Marketing. Sales and marketing costs increased 132% from
$10.6 million for the nine-month period ended September 30, 1999 to $24.6
million for the nine-month period ended September 30, 2000. This increase of
$14.0 million was primarily due to increased compensation costs. As part of the
Company's expanded sales and marketing activities, the Company


                                      14.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

hired additional sales and support personnel during 1999 and 2000. The Company
expects sales and marketing costs to increase in absolute dollars for the
foreseeable future.

         General and Administrative. General and administrative costs increased
310% from $5.1 million for the nine-months ended September 30, 1999 to $20.9
million for the six-months ended September 30, 2000. This increase of $15.8
million was primarily due to compensation costs, professional services costs,
facility costs, travel costs and increased depreciation and amortization costs
due to the addition of corporate office space during 1999 and 2000. The Company
expects general and administrative costs to increase in absolute dollars as the
Company deploys additional service points.

         Other Income (Expense). Other income (expense), net, increased from
$244,000 of other expense for the nine-month period ended September 30, 1999 to
$9.3 million of other income for the nine-month period ended September 30, 2000.
This increase was primarily due to interest income earned on the proceeds from
the Company's initial public and follow-on offerings.

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

         Revenues. Revenues increased 461% from $3.6 million for the three-month
period ended September 30, 1999 to $20.2 million for the three-month period
ended September 30, 2000. This increase of $16.6 million was primarily due to
increased Internet connectivity revenues. The increase in Internet connectivity
revenues was attributable to the increased sales at the Company's existing
service points and the deployment of additional service points during 1999 and
2000.

         Costs of Network and Customer Support. Costs of network and customer
support increased 220% from $8.4 million for the three-month period ended
September 30, 1999 to $26.9 million for the three-month period ended September
30, 2000. This increase of $18.5 million was primarily due to increased
connectivity costs related to added connections to Internet backbone and
competitive local exchange providers at each service point and, to a lesser
extent, additional compensation costs and depreciation expense related to the
equipment at newly deployed service points. Network and customer support costs
as a percentage of total revenues are generally greater than 100% for newly
deployed service points because the Company purchases Internet connectivity
capacity from the backbone providers in advance of securing new customers. The
Company expects these costs to increase in absolute dollars as the Company
deploys additional service points.

         Product Development. Product development costs increased 273% from $1.1
million for the three-month period ended September 30, 1999 to $4.1 million for
the three-month period ended September 30, 2000. This increase of $3.0 million
was primarily due to increased compensation costs. The Company expects product
development costs to increase in absolute dollars for the foreseeable future.

         Sales and Marketing. Sales and marketing costs increased 89% from $4.7
million for the three-month period ended September 30, 1999 to $8.9 million for
the three-month period ended September 30, 2000. This increase of $4.2 million
was primarily due to increased compensation costs. As part of the Company's
expanded sales and marketing activities, the Company hired additional sales and
support personnel during 1999 and 2000. The Company expects sales and marketing
costs to increase in absolute dollars for the foreseeable future.

         General and Administrative. General and administrative costs increased
409% from $2.2 million for the three-months ended September 30, 1999 to $11.2
million for the three-months ended September 30, 2000. This increase of $9.0
million was primarily due to compensation costs, professional services costs and
facility costs due to the addition of corporate office space during 1999 and
2000. The Company expects general and administrative costs to increase in
absolute dollars as the Company deploys additional service points.

         Other Income (Expense). Other income (expense), net, increased from
$547,000 of other expense for the three-month period ended September 30, 1999 to
$2.9 million of other income for the three-month period ended September 30,
2000. This increase was primarily due to interest income earned on the proceeds
from the Company's initial public and secondary offerings.

LIQUIDITY AND CAPITAL RESOURCES

         Since its inception, the Company has financed its operations primarily
through the issuance of its equity securities, capital leases, equipment
financing and bank loans. As of September 30, 2000, the Company has raised an
aggregate of approximately $739.7 million, net of offering expenses, through the
sale of its equity securities.

         On February 22, 2000, pursuant to an investment agreement, the Company
purchased 588,236 shares of Aventail Corporation ("Aventail") Series D
preferred stock at $10.20 per share for a total cash investment of $6.0
million. The Series D preferred stock is convertible to common stock at a
ratio of one share of preferred stock to one share of common stock, subject to
adjustment for certain equity transactions. Additionally, the Company and
Aventail entered into a joint marketing agreement which, among other things,

                                      15.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

granted the Company certain limited exclusive rights to sell Aventail's managed
extranet service and granted Aventail certain rights to sell the Company's
services. In return, the Company committed to either sell Aventail services or
pay Aventail, or a combination of both, which would result in Aventail's
recognition of $3.0 million of revenue over a two-year period.

         On April 6, 2000, 8,625,000 shares of the Company's common stock were
sold in a secondary public offering at a price of $43.50 per share. Of these
shares, 3,450,000 were sold by the Company and 5,175,000 shares were sold by
selling shareholders. The Company did not receive any of the proceeds from the
sale of shares of common stock by the selling shareholders. The proceeds to the
Company from the offering were $142.9 million, net of underwriting discounts and
commissions of $7.1 million.

         On April 10, 2000, the Company entered into an agreement with a
financial institution (the "Financing Agreement"), which will provide the
Company up to $7.5 million in funding for the purpose of financing capital
expenditures. The Financing Agreement has a 36 month term and calls for equal
payments of accrued interest plus 2.1% of the original principal balance over
the term of the agreement with a balloon payment for the residual 27% of
principal upon maturity. Interest is at the 30-day London Inter Bank Offered
Rate plus 3.70% (10.32% at September 30, 2000) and is adjusted monthly. In the
event the Company's cash and cash equivalent balance is equal to or less than
$60.0 million at the end of any quarter, the Company will be required to provide
an irrevocable renewable letter of credit in an amount equal to the balance of
the loan. There were no amounts outstanding under the Financing Agreement at
September 30, 2000.

         Pursuant to an investment agreement among the Company, Ledcor Limited
Partnership, Worldwide Fiber Holdings Ltd. and 360networks, Inc.
("360networks"), on April 17, 2000, the Company purchased 374,182 shares of
360networks Class A Non-Voting Stock at $5.00 per share and, on April 26, 2000,
the Company purchased 1,122,545 shares of 360networks Class A Subordinate Voting
Stock at $13.23 per share. The total cash investment was $16.7 million.
Additionally, the Company and 360networks entered into a letter of intent to
negotiate a strategic agreement that would provide the Company with long-haul
fiber-optic bandwidth capacity and provide 360networks with the Company's
Internet connectivity services.

         On August 20, 2000, the Company entered into a credit facility with 
Speedera Networks ("Speedera") which allows Speedera to borrow up to $6.0 
million from the Company. The credit facility bears interest at the prime 
rate plus 3% on the date of each draw and matures on December 31, 2000. Upon 
maturity, Speedera has the option of repaying all principal and accrued 
interest or converting the amount due into Speedera preferred stock. As of 
September 30, 2000, the Company has included $3.0 million in non-current 
investments related to Speedera borrowings under the credit facility. 
Subsequent to September 30, 2000, Speedera borrowed the remaining $3.0 
million under the credit facility.

         At September 30, 2000, the Company had cash, cash equivalents and
investments of $244.3 million. The Company has a revolving line of credit with
Silicon Valley Bank under which the Company is allowed to borrow up to $3.0
million, as limited by certain borrowing base requirements which include
maintaining certain levels of monthly revenues and customer turnover ratios. The
line of credit requires monthly payments of interest only at prime, or 9.5% as
of September 30, 2000, and matures on June 30, 2001. At September 30, 2000, the
Company had outstanding borrowings of $1.5 million on the line of credit.

         During 1999, the Company entered into an equipment financing
arrangement with a financial institution allowing the Company to borrow up to
$5.0 million for the purchase of property and equipment. The equipment financing
arrangement includes sublimits of $3.5 million for equipment costs and $1.5
million for the acquisition of software, service point and other equipment
costs. Loans under the $3.5 million sublimit require monthly principal and
interest payments over a term of 48 months. This facility bears interest at 7.5%
plus an index rate based on the yield of 4-year U.S. Treasury Notes. This rate
was 13.89% at September 30, 2000. Loans under the $1.5 million sublimit require
monthly principal and interest payments over a term of 36 months. This facility
bears interest at 7.9% plus an index rate based on the yield of 3-year U.S.
Treasury Notes. This rate was 13.98% at September 30, 2000. Borrowings under
each sublimit must be made prior to May 1, 2000. During March 2000, the Company
borrowed an additional $594,000 for equipment purchases. As of September 30,
2000, the Company's remaining obligation related to this arrangement totaled 
approximately $3.7 million.

         During 2000, the Company amended an existing equipment lease credit
facility with a vendor to increase its available credit by $14.5 million to
$50.0 million. As of September 30, 2000, the Company had approximately $16.6
million available under this credit facility.

         As part of the acquisition of CO Space on June 20, 2000, the Company
assumed an equipment financing agreement (the "Equipment Financing Agreement")
with a financial institution, which provides up to $2.0 million for the purchase
of equipment. The Equipment Financing Agreement was signed on July 29, 1999 and
has a 42 month term, with a commitment termination date of June 30, 2000. The
interest rate is 3.25% over the yield of a 42-month U. S. Treasury Note on the
day of funding. There are two loan schedules under the Equipment Financing
Agreement with interest rates of 8.99% and 9.12%. The Equipment Financing
Agreement calls for equal monthly principal and interest payments over the term
of the Equipment Financing Agreement with a final payment of 8.5% of the
original loan amount. As of September 30, 2000, the Company had


                                      16.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

outstanding borrowings of $1.5 million under this Equipment Financing Agreement.

         On July 31, 2000, the Company assumed a senior loan and security
agreement (the "Security Agreement") in connection with the acquisition of VPNX.
The Security Agreement provides up to $2.0 million for the purchase of equipment
and requires 36 equal monthly payments of principal and interest. The interest
rates on the existing notes range from 6.59% to 8.03%, and each note has a final
payment of 15% of the original balance. This final payment may be extended for
an additional 12 months at a monthly rate of 1.5%. The commitment termination
date under the Security Agreement was August 31, 2000. Outstanding borrowings at
September 30, 2000 were $685,000.

         Net cash used in operations was $67.9 million for the nine-months ended
September 30, 2000, and $23.5 million for the nine-months ended September 30,
1999. Net cash used in operations for the nine-months ended September 30, 2000
was primarily due to funding our operating losses and increases in accounts
receivable, investment income receivable and prepaid expenses, deposits and
other assets and decreases in accounts payable, offset by non-cash charges,
depreciation and amortization and increases in deferred revenue.

         Net cash used in investing activities was $140.6 million for the
nine-months ended September 30, 2000 and $7.1 million for the nine-months ended
September 30, 1999. Purchases of property and equipment were partially financed
by capital leases (such purchases are excluded from the net cash used in
investing activities in the statement of cash flows) and totaled $60.9 million
($23.4 million financed by capital leases) for the nine-months ended September
30, 2000. Additionally, for the nine-month period ended September 30, 2000,
$160.4 million was used to purchase investments, offset by $63.8 million of
redeemed investments. The Company also used $10.0 million in connection with the
acquisition of CO Space during the nine-month period ended September 30, 2000
offset by $3.0 million of net cash received from the acquisition of VPNX.

         Net cash provided from financing activities was $133.3 million for the
nine-months ended September 30, 2000 and $31.2 million for the nine-months ended
September 30, 1999. Net cash from financing activities primarily reflects
proceeds from the sales of our equity securities offset by the costs of those
proceeds, restrictions of cash related to lines and letters of credit and
payments on capital lease obligations and notes payable.

         The Company expects to spend significant additional capital to recruit
and train its customer installation team and the sales force and to build out
the sales facilities related to newly deployed service points. In addition to
service point deployment, although to a lesser extent, product development and
the development of the Company's internal systems and software will continue to
require significant capital expenditures in the foreseeable future, as will the
expansion of its marketing efforts. The Company expects to continue to expend
significant amounts of capital on property and equipment related to the
expansion of facility infrastructure, computer equipment and for research and
development laboratory and test equipment to support on-going research and
development operations.

         The Company believes the net proceeds from its secondary offering
together with its cash and cash equivalents, investments and funds available
under its revolving and capital lease lines will be sufficient to satisfy its
cash requirements for the next 12 months. Depending on its rate of growth and
cash requirements, the Company may require additional equity or debt financing
to meet future working capital needs, which may have a dilutive effect on its
then current shareholders. There can be no assurance that such additional
financing will be available or, if available, that such financing can be
obtained on satisfactory terms. The Company's management intends to invest cash
in excess of current operating requirements in short-term, interest-bearing,
investment-grade securities.


I
TEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company maintains investment portfolio holdings of various issuers,
types, and maturities, the majority of which are commercial paper and government
securities. These securities are generally classified as available for sale and,
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of accumulated other
comprehensive income. Part of this portfolio includes a $16.7 million minority
equity investment in 360networks, a publicly traded company listed on the Nasdaq
National Market. The value of the 360networks investment is subject to market
price volatility. The Company also has a $6.0 million equity investment in
Aventail Corporation, an early stage, privately held company, and a $3.0
million investment in, Speedera, an early stage, privately held company. These
strategic investments are inherently risky, in part because the market for the
products or services being offered or developed by 360networks, Aventail and
Speedera have not been proven and may never materialize. Because of the risk
associated with these investments, the Company could lose its entire initial
investment in these companies.

         The residual portion of the Company's investment portfolio is invested
in commercial paper and government securities that could experience a material
adverse decline in fair value should a sharp decline in interest rates occur. In
addition, declines in interest rates could have a material adverse impact on
interest earnings for the Company's investment portfolio. The Company does not
currently hedge against these interest rate exposures.


                                      17.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

         The following sensitivity analysis presents hypothetical changes in the
fair values of the Company's investment in 360networks, the Company's only
current public equity investment. This modeling technique measures the
hypothetical change in fair values arising from selected hypothetical changes in
the stock price of 360networks. Stock price fluctuations of plus or minus 15%,
35% and 50% were selected because there has been at least one movement in the
Nasdaq Composite Index of at least 15% in each of the last three years and
movements of at least 35% and 50% in at least one of the last three years.


<TABLE>
<CAPTION>

                                        Valuation of Security Given X%      Valuation of Security given X%
                                         Increase in Security's Price        Decrease in Security's Price
                     Fair Value at             (in thousands)                      (in thousands)
                     9/30/2000          -------------------------------     -------------------------------
    Security         (in thousands)         35%               50%               (35%)             (50%)
-----------------    ---------------    ------------    ----------------    --------------     -------------
<S>                     <C>              <C>               <C>                <C>                <C>
  360networks
 Capital Stock          $ 29,373         $ 39,654          $ 44,060           $ 19,093           $ 14,687
</TABLE>




<TABLE>
<CAPTION>
                     Fair Value at      Valuation of Security Given 15%     Valuation of Security Given 15%
                       9/30/2000        Increase in Security's Price        Decrease in Security's Price
    Security         (in thousands)           (in thousands)                       (in thousands)
-----------------    ---------------    -------------------------------     -------------------------------
<S>                     <C>                        <C>                               <C>
  360networks
 Capital Stock          $ 29,373                   $ 33,779                          $ 24,967
</TABLE>



                                  RISK FACTORS

RISKS RELATED TO THE COMPANY'S BUSINESS

         THE COMPANY HAS A HISTORY OF LOSSES, EXPECTS FUTURE LOSSES AND MAY NOT
ACHIEVE OR SUSTAIN ANNUAL PROFITABILITY. The Company has incurred net losses in
each quarterly and annual period since the Company began operations. The Company
incurred net losses of $1.6 million, $7.0 million and $49.9 million for the
years ended December 31, 1997, 1998 and 1999, respectively. The Company's net
loss for the nine months ended September 30, 2000 was $118.2 million. As of
September 30, 2000, the Company's accumulated deficit was $177.7 million. As a
result of its expansion plans, the Company expects to incur net losses and
negative cash flows from operations on a quarterly and annual basis for at least
the next 24 months, and the Company may never become profitable.

         THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE
ITS PROSPECTS. The revenue and income potential of the Company's business and
market is unproven, and its limited operating history makes it difficult to
evaluate its prospects. The Company has only been in existence since 1996, and
its services are only offered in limited regions. Investors should consider and
evaluate the Company's prospects in light of the risks and difficulties
frequently encountered by relatively new companies, particularly companies in
the rapidly evolving Internet infrastructure and connectivity markets.

         NEGATIVE MOVEMENTS IN THE COMPANY'S QUARTERLY OPERATING RESULTS MAY
DISAPPOINT ANALYSTS' EXPECTATIONS, WHICH COULD HAVE A NEGATIVE IMPACT ON THE
COMPANY'S STOCK PRICE. Should the Company's results of operations from quarter
to quarter fail to meet the expectations of public market analysts and
investors, its stock price could suffer. Any significant unanticipated shortfall
of revenues or increase in expenses could negatively impact its expected
quarterly results of operations should the Company be unable to make timely
adjustments to compensate for them. Furthermore, a failure on the part of the
Company to estimate accurately the timing or magnitude of particular anticipated
revenues or expenses could also negatively impact its quarterly results of
operations.

         Because the Company's quarterly results of operations have fluctuated
in the past and will continue to fluctuate in the future, investors should not
rely on the results of any past quarter or quarters as an indication of future
performance in its business operations or stock price. For example, increases in
the Company's quarterly revenues for the quarters ended September 30, 1999
through September 30, 2000 have varied between 48% and 67%, and total operating
costs and expenses, as a percentage of revenues, have fluctuated between 296%
and 523%. Fluctuations in the Company's quarterly operating results depend on a
number of factors. Some of these factors are industry risks over which the
Company has no control, including the introduction of new services by its
competitors, fluctuations in the demand and sales cycle for its services,
fluctuations in the market for qualified sales and other personnel, changes in
the prices for Internet connectivity the Company pays backbone providers, its
ability to obtain local loop connections to its service points at favorable
prices, and integration of people, operations, products and technologies of
acquired businesses.

         Other factors that may cause fluctuations in the Company's quarterly
operating results arise from strategic decisions the Company has made or will
make with respect to the timing and magnitude of capital expenditures such as
those associated with the deployment of additional service points and the terms
of its Internet connectivity purchases. For example, the Company's practice is
to purchase Internet connectivity from backbone providers at new service points
before customers are secured. The


                                      18.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

Company also has agreed to purchase Internet connectivity from some providers
without regard to the amount the Company resells to its customers.

         THE COMPANY MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE AND MAY NOT BE
ABLE TO SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO THE COMPANY. The expansion
and development of the Company's business will require significant capital,
which the Company may be unable to obtain, to fund its capital expenditures and
operations, including working capital needs. The Company's principal capital
expenditures and lease payments include deployment of service points,
construction of collocation facilities, leasehold improvements and the purchase,
lease and installation of network equipment such as routers, telecommunications
equipment and other computer equipment. The timing and amount of the Company's
future capital requirements may vary significantly depending on numerous
factors, including regulatory, technological, competitive and other developments
in its industry. During the next 12 months, the Company expects to meet its cash
requirements with existing cash, cash equivalents, short-term investments, cash
flow from sales of its services and use of credit facilities. However, the
Company's capital requirements depend on several factors, including the rate of
market acceptance of the Company's services, the ability to expand its customer
base, the rate of deployment of additional service points and collocation
facilities and other factors. If the Company's capital requirements vary
materially from those currently planned, or if the Company fails to generate
sufficient cash flow from the sales of its services, the Company may require
additional financing sooner than anticipated or the Company may have to delay or
abandon some or all of its development and expansion plans or otherwise forego
market opportunities.

         The Company may not be able to obtain future equity, debt or vendor
financing on favorable terms, if at all. In addition, the Company's credit
agreement contains covenants restricting its ability to incur further
indebtedness. Future borrowing instruments such as credit facilities and lease
agreements are likely to contain similar or more restrictive covenants and will
likely require the Company to pledge assets as security for borrowings
thereunder. The Company's inability to obtain additional capital on satisfactory
terms may delay or prevent the expansion of its business.

         IF THE COMPANY IS UNABLE TO MANAGE COMPLICATIONS THAT ARISE DURING
DEPLOYMENT OF NEW SERVICE POINTS AND COLLOCATION FACILITIES, THE COMPANY MAY NOT
SUCCEED IN ITS EXPANSION PLANS. Any delay in the opening of new service points
and collocation facilities would significantly harm the Company's plans to
expand its business. In its effort to deploy new service points and collocation
facilities, the Company faces various risks associated with significant
construction projects, including identifying and locating service point or
collocation facility sites, construction delays, cost estimation errors or
overruns, delays in connecting with local exchanges, equipment and material
delays or shortages, the inability to obtain necessary permits on a timely
basis, if at all, and other factors, many of which are beyond the Company's
control and all of which could delay the deployment of a new service point or
collocation facility. The deployment of new service points and collocation
facilities, each of which takes approximately four to six months to complete, is
a key element of the Company's business strategy. In addition to its 23 existing
facilities, the Company is planning to continue to deploy service points and
collocation facilities across a wide range of geographic regions, including
foreign countries. Although the Company conducts market research in a geographic
area before deploying a service point or collocation facility, the Company does
not enter into service contracts with customers prior to building a new service
point or collocation facility.

         THE COMPANY WILL INCUR ADDITIONAL EXPENSE ASSOCIATED WITH THE
DEPLOYMENT OF NEW SERVICE POINTS AND COLLOCATION FACILITIES AND MAY BE UNABLE TO
EFFECTIVELY INTEGRATE NEW SERVICE POINTS AND COLLOCATION FACILITIES INTO ITS
EXISTING NETWORK, WHICH COULD DISRUPT ITS SERVICE. New service points and
collocation facilities, if completed, will result in substantial new operating
expenses, including expenses associated with hiring, training, retaining and
managing new employees, provisioning capacity from backbone providers,
purchasing new equipment, implementing new systems, leasing additional real
estate and incurring additional depreciation expense. In addition, if the
Company does not institute adequate financial and managerial controls, reporting
systems, and procedures with which to operate multiple service points and
collocation facilities in geographically dispersed locations, its operations
will be significantly harmed.

         BECAUSE THE COMPANY'S REVENUES DEPEND HEAVILY ON A FEW SIGNIFICANT
CUSTOMERS, A LOSS OF ONE OR MORE OF THESE SIGNIFICANT CUSTOMERS COULD REDUCE THE
COMPANY'S REVENUES. The Company currently derives a substantial portion of its
total revenues from a limited number of customers, and the revenues from these
customers may not continue. For the quarter ended September 30, 2000 revenues
from the Company's five largest customers represented approximately 16.3% of its
total revenues. Typically, the agreements with the Company's customers are based
on the Company's standard terms and conditions of service and generally have
terms ranging from one year to three years. Revenues from these customers or
from other customers that have accounted for a significant portion of the
Company's revenues in past periods, individually or as a group, may not
continue. If such revenues do continue, they may not reach or exceed historical
levels in any future period. In addition, the Company may not succeed in
diversifying its customer base in future periods. Accordingly, the Company may
continue to derive a significant portion of its revenues from a relatively small
number of customers. Further, the Company has had limited experience with the
renewal of contracts by customers whose initial service contract terms have been
completed and these customers may not renew their contracts with the Company.


                                      19.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

         IF THE COMPANY IS UNABLE TO CONTINUE TO RECEIVE COST-EFFECTIVE SERVICE
FROM ITS BACKBONE PROVIDERS, THE COMPANY MAY NOT BE ABLE TO PROVIDE ITS INTERNET
CONNECTIVITY SERVICES ON PROFITABLE TERMS AND THESE BACKBONE PROVIDERS MAY NOT
CONTINUE TO PROVIDE SERVICE TO THE COMPANY. In delivering its services, the
Company relies on Internet backbones, which are built and operated by others. In
order to be able to provide optimal routing to its customers through its service
points, the Company must purchase connections from several Internet backbone
providers. There can be no assurance that these Internet backbone providers will
continue to provide service to the Company on a cost-effective basis, if at all,
or that these providers will provide the Company with additional capacity to
adequately meet customer demand. Furthermore, it is very unlikely that the
Company could replace its Internet backbone providers on comparable terms.

         Currently, in each of its fully operational service points, the Company
has connections to some combination of the following 11 backbone providers:
AT&T, Cable & Wireless USA, Inc., Earthlink, Inc., Global Crossing
Telecommunications, Inc., Genuity, Intermedia Communications Inc., PSINet, Inc.,
Qwest Communications International, Inc., Sprint Internet Services, UUNET, a MCI
WorldCom Company, and Verio, Inc. (which was acquired by NTT Communications
Corporation). The Company may be unable to maintain relationships with, or
obtain necessary additional capacity from, these backbone providers.
Furthermore, the Company may be unable to establish and maintain relationships
with other backbone providers that may emerge or that are significant in
geographic areas in which the Company locates its service points.

         COMPETITION FROM MORE ESTABLISHED COMPETITORS WHO HAVE GREATER REVENUES
COULD DECREASE ITS MARKET SHARE. The Internet connectivity services market is
extremely competitive, and there are few substantial barriers to entry. The
Company expects competition from existing competitors to intensify in the
future, and the Company may not have the financial resources, technical
expertise, sales and marketing abilities or support capabilities to compete
successfully in its market. Many of the Company's existing competitors have
greater market presence, engineering and marketing capabilities, and financial,
technological and personnel resources than the Company does. As a result, the
Company's competitors may have several advantages over the Company as it seeks
to develop a greater market presence.

         The Company's competitors currently include backbone providers that
provide connectivity services to the Company, including AT&T, Cable & Wireless
USA, Earthlink, Global Crossing, Genuity, Intermedia, PSINet, Qwest
Communications International, Sprint, UUNET and Verio (which was acquired by
NTT Communications Corporation), regional Bell operating companies which offer
Internet access, and global, national and regional Internet service providers.

         In addition, if the Company is successful in implementing the Company's
international expansion, the Company expects to encounter additional competition
from international Internet service providers as well as international
telecommunications companies.

         COMPETITION FROM NEW COMPETITORS COULD DECREASE THE COMPANY'S MARKET
SHARE. The Company also believes that new competitors will enter its market.
Such new competitors could include computer hardware, software, media and other
technology and telecommunications companies. A number of telecommunications
companies and online service providers have announced plans to offer or expand
their network services. For example, Genuity, PSINet and Verio (which was
acquired by NTT Communications Corporation) have expanded their Internet access
products and services through acquisition. Further, the ability of some of these
potential competitors to bundle other services and products with their network
services could place the Company at a competitive disadvantage. Various
companies are also exploring the possibility of providing, or are currently
providing, high-speed data services using alternative delivery methods including
the cable television infrastructure, direct broadcast satellites, wireless cable
and wireless local loop. In addition, Internet backbone providers may make
technological developments, such as improved router technology, that will
enhance the quality of their services.

         PRICING PRESSURE COULD DECREASE THE COMPANY'S MARKET SHARE. Increased
price competition or other competitive pressures could erode the Company's
market share. The Company currently charges, and expects to continue to charge,
more for its Internet connectivity services than its competitors. For example,
the Company's current standard pricing is approximately 5% more than UUNET's
current standard pricing and approximately 18% more than Sprint's current
standard pricing. By bundling their services and reducing the overall cost of
their solutions, telecommunications companies that compete with the Company may
be able to provide customers with reduced communications costs in connection
with their Internet connectivity services or private network services, thereby
significantly increasing the pressure on the Company to decrease its prices. The
Company may not be able to offset the effects of any such price reductions even
with an increase in the number of its customers, higher revenues from enhanced
services, cost reductions or otherwise. In addition, the Company believes that
the Internet connectivity industry is likely to encounter consolidation in the
future. Consolidation could result in increased pressure on the Company to
decrease its prices.

         A FAILURE IN THE COMPANY'S NETWORK OPERATIONS CENTERS, SERVICE POINTS
OR COMPUTER SYSTEMS WOULD CAUSE A SIGNIFICANT DISRUPTION IN THE PROVISION OF ITS
INTERNET CONNECTIVITY SERVICES. Although the Company has taken precautions
against systems failure, interruptions could result from natural disasters as
well as power loss, telecommunications failure and similar events. The Company's
business depends on the efficient and uninterrupted operation of its network
operations centers,


                                      20.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

its service points and its computer and communications hardware systems and
infrastructure. The Company currently has one network operations center located
in Seattle, and it has 23 service points which are located in the Atlanta,
Boston (two service points), Chicago, Dallas (two service points), Denver,
Fremont, CA, Houston, Los Angeles, Miami, New York (two service points), Orange
County, CA, Philadelphia, San Diego, San Francisco, San Jose (two service
points), Seattle (three service points), and Washington, D.C. metropolitan
areas. If the Company experiences a problem at its network operations centers,
the Company may be unable to provide Internet connectivity services to its
customers, provide customer service and support or monitor its network
infrastructure and service points, any of which would seriously harm its
business.

         BECAUSE THE COMPANY HAS NO EXPERIENCE OPERATING INTERNATIONALLY, ITS
INTERNATIONAL EXPANSION MAY BE LIMITED. Although the Company currently operates
in 17 domestic metropolitan markets, a key component of its strategy is to
expand into international markets. The Company has no experience operating
internationally. The Company may not be able to adapt its services to
international markets or market and sell these services to customers abroad. In
addition to general risks associated with international business expansion, the
Company faces the following specific risks in its international business
expansion plans:

         -   difficulties in establishing and maintaining relationships with
             foreign backbone providers and local vendors, including co-location
             and local loop providers; and

         -   difficulties in locating, building and deploying network operations
             centers, service points and collocation facilities in foreign
             countries, including in the United Kingdom and the Netherlands
             where the Company plans to deploy service points in 2000, and
             managing service points and network operations centers across
             disparate geographic areas.

         The Company may be unsuccessful in its efforts to address the risks
associated with its currently proposed international operations, and its
international sales growth may therefore be limited.

         THE COMPANY'S BRAND IS RELATIVELY NEW, AND FAILURE TO DEVELOP BRAND
RECOGNITION COULD HURT THE COMPANY'S ABILITY TO COMPETE EFFECTIVELY. To
successfully execute its strategy, the Company must strengthen its brand
awareness. If the Company does not build its brand awareness, its ability to
realize its strategic and financial objectives could be hurt. Many of the
Company's competitors have well-established brands associated with the provision
of Internet connectivity services. To date, the Company's market presence has
been limited principally to the Atlanta, Boston, Chicago, Dallas, Denver,
Fremont CA, Houston, Los Angeles, Miami, New York, Orange County, CA,
Philadelphia, San Diego, San Francisco, San Jose, Seattle and Washington D.C.
metropolitan areas. To date, the Company has attracted its existing customers
primarily through a relatively small sales force and word of mouth. In order to
build its brand awareness, the Company intends to increase its marketing efforts
significantly, which may not be successful, and the Company must continue to
provide high quality services. As part of its brand building efforts, the
Company expects to increase its marketing budget substantially as well as its
marketing activities, including advertising, tradeshows, direct response
programs and new service point and collocation facility launch events.

         THE COMPANY IS DEPENDENT UPON ITS KEY EMPLOYEES AND MAY BE UNABLE TO
ATTRACT OR RETAIN SUFFICIENT NUMBERS OF QUALIFIED PERSONNEL. The Company's
future performance depends to a significant degree upon the continued
contributions of its executive management team and key technical personnel. The
loss of any member of the Company's executive management team or a key technical
employee, such as its Chief Executive Officer, Anthony Naughtin, its Chief
Operating Officer, Michael Vent, its Chief Technology Officer, Christopher
Wheeler or its Chief Financial Officer, Paul McBride, could significantly harm
the Company. Any of the Company's officers or employees can terminate his or her
relationship with the Company at any time. To the extent the Company is able to
expand its operations and deploy additional service points and collocation
facilities, its workforce will be required to grow. Accordingly, the Company's
future success depends on the Company's ability to attract, hire, train and
retain a substantial number of highly skilled management, technical, sales,
marketing and customer support personnel. Competition for qualified employees is
intense. Consequently, the Company may not be successful in attracting, hiring,
training and retaining the people the Company needs, which would seriously
impede its ability to implement its business strategy.

         IF THE COMPANY IS NOT ABLE TO SUPPORT ITS RAPID GROWTH EFFECTIVELY, ITS
EXPANSION PLANS MAY BE FRUSTRATED OR MAY FAIL. The Company's inability to manage
growth effectively would seriously harm its plans to expand its Internet
connectivity services into new markets. Since the introduction of its Internet
connectivity services, the Company has experienced a period of rapid growth and
expansion, which has placed, and continues to place, a significant strain on all
of its resources. For example, as of December 31, 1996 the Company had one
operational service point and nine employees compared to 23 operational service
points and 694 full-time employees as of September 30, 2000. In addition, the
Company had $3.6 million in revenues for the three months ended September 30,
1999, compared to $20.2 million in revenues for the three months ended September
30, 2000. The Company expects its growth to continue to strain its management,
operational and financial resources. For example, the Company may not be able to
install adequate financial control systems in an efficient and timely manner,
and its current or planned information systems, procedures and controls may be
inadequate to support its future operations. The


                                      21.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

difficulties associated with installing and implementing new systems, procedures
and controls may place a significant burden on the Company's management and its
internal resources. The Company's plans to rapidly deploy additional service
points and collocation facilities could place a significant strain on its
management's time and resources.

         IF THE COMPANY FAILS TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY,
THE COMPANY MAY LOSE RIGHTS TO SOME OF ITS MOST VALUABLE ASSETS. The Company
relies on a combination of patent, copyright, trademark, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect its proprietary technology. The InterNAP logo, InterNAP and
P-NAP are trademarks of InterNAP which are registered in the United States. The
United States Patent and Trademark Office, or USPTO, issued a patent in
September 1999 relating to an initial patent application the Company filed on
September 3, 1997. The patent is enforceable for a duration of 20 years from the
date of filing, or until September 3, 2017. In addition, the Company acquired an
additional patent in its acquisition of VPNX.com, Inc. There can be no assurance
that these patents or any future issued patent will provide significant
proprietary protection or commercial advantage to the Company or that the USPTO
will allow any additional or future claims. The Company has a second application
pending and may file additional applications in the future. Additional claims
that were included by amendment in the Company's initial application have now
been included in its second patent application. The Company's patent and patent
applications relate to its P-NAP facility technology. In addition, the Company
has filed a corresponding international patent application under the Patent
Cooperation Treaty.

         It is possible that any patents that have been or may be issued to the
Company could still be successfully challenged by third parties, which could
result in the Company's loss of the right to prevent others from exploiting the
inventions claimed in those patents. Further, current and future competitors may
independently develop similar technologies, duplicate the Company's services and
products or design around any patents that may be issued to the Company. In
addition, effective patent protection may not be available in every country in
which the Company intends to do business.

         In addition to patent protection, the Company believes the protection
of its copyrightable materials, trademarks and trade secrets is important to its
future success. The Company relies on a combination of laws, such as copyright,
trademark and trade secret laws and contractual restrictions, such as
confidentiality agreements and licenses, to establish and protect its
proprietary rights. In particular, the Company generally enters into
confidentiality agreements with its employees and nondisclosure agreements with
its customers and corporations with whom the Company has strategic
relationships. In addition, the Company generally registers its important
trademarks with the USPTO to preserve their value and establish proof of its
ownership and use of these trademarks. Any trademarks that may be issued to the
Company may not provide significant proprietary protection or commercial
advantage to the Company. Despite any precautions that the Company has taken,
intellectual property laws and contractual restrictions may not be sufficient to
prevent misappropriation of its technology or deter others from developing
similar technology.

         THE COMPANY MAY FACE LITIGATION AND LIABILITY DUE TO CLAIMS OF
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. The telecommunications
industry is characterized by the existence of a large number of patents and
frequent litigation based on allegations of patent infringement. From time to
time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to the Company's
business. Any claims that the Company's services infringe or may infringe
proprietary rights of third parties, with or without merit, could be
time-consuming, result in costly litigation, divert the efforts of the Company's
technical and management personnel or require the Company to enter into royalty
or licensing agreements, any of which could significantly harm its operating
results. In addition, in its customer agreements, the Company agrees to
indemnify its customers for any expenses or liabilities resulting from claimed
infringement of patents, trademarks or copyrights of third parties. If a claim
against the Company were to be successful and the Company were not able to
obtain a license to the relevant or a substitute technology on acceptable terms
or redesign its products to avoid infringement, its ability to compete
successfully in its competitive market would be impaired.

         BECAUSE THE COMPANY DEPENDS ON THIRD PARTY SUPPLIERS FOR KEY COMPONENTS
OF ITS NETWORK INFRASTRUCTURE, FAILURES OF THESE SUPPLIERS TO DELIVER THEIR
COMPONENTS AS AGREED COULD HINDER ITS ABILITY TO PROVIDE ITS SERVICES ON A
COMPETITIVE AND TIMELY BASIS. Any failure to obtain required products or
services from third party suppliers on a timely basis and at an acceptable cost
would affect the Company's ability to provide its Internet connectivity services
on a competitive and timely basis. The Company is dependent on other companies
to supply various key components of its infrastructure, including the local
loops between its service points and its Internet backbone providers and between
its service points and its customers' networks. In addition, the routers and
switches used in the Company's network infrastructure are currently supplied by
a limited number of vendors, including Cisco Systems, Inc. Additional sources of
these services and products may not be available in the future on satisfactory
terms, if at all. The Company purchases these services and products pursuant to
purchase orders placed from time to time. Furthermore, the Company does not
carry significant inventories of the products it purchases, and the Company has
no guaranteed supply arrangements with its vendors. The Company has in the past
experienced delays in installation of services and receiving shipments of
equipment purchased. To date, these delays have neither been material nor have
adversely affected the Company, but these delays could affect the Company's
ability to deploy service points in the future on a timely basis. If Cisco
Systems does not provide the Company with its routers, or if the Company's
limited source suppliers


                                      22.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

fail to provide products or services that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
services the Company uses in its network infrastructure, the Company may be
unable to meet its customer service commitments.

         THE COMPANY HAS ACQUIRED AND EXPECTS TO ACQUIRE OTHER BUSINESSES, AND
THESE ACQUISITIONS INVOLVE NUMEROUS RISKS. The Company recently completed two
significant business acquisitions. In June and July 2000, the Company acquired
CO Space, Inc. and VPNX.com, Inc., respectively, in merger transactions. The
Company expects to engage in additional acquisitions in the future in order to,
among other things, enhance its existing services and enlarge its customer base.
Acquisitions involve a number of risks that could potentially, but not
exclusively, include the following:

         -   difficulties in integrating the operations, personnel,
             technologies, products and services of the acquired companies in a
             timely and efficient manner;
         -   diversion of management's attention from normal daily operations;
         -   insufficient revenues to offset significant unforeseen costs and
             increased expenses associated with the acquisitions;
         -   difficulties in completing projects associated with in-process
             research and development being conducted by the acquired
             businesses;
         -   risks associated with the Company's entrance into markets in which
             it has little or no prior experience and where competitors have a
             stronger market presence;
         -   deferral of purchasing decisions by current and potential customers
             as they evaluate the likelihood of success of the acquisitions;
         -   difficulties in pursuing relationships with potential strategic
             partners who may view the combined company as a more direct
             competitor than its predecessor entities taken independently;
         -   issuance by the Company of equity securities that would dilute
             ownership of existing shareholders;
         -   incurrence of significant debt, contingent liabilities and
             amortization expenses; and
         -   loss of key employees of the acquired companies.

         Acquiring high-technology businesses as a means of achieving growth is
inherently risky. To meet these risks, the Company must maintain its ability to
manage effectively any growth that results from using these means. Failure to
manage effectively its growth through mergers and acquisitions, could harm the
Company's business and operating results.

RISKS RELATED TO THE COMPANY'S INDUSTRY

         BECAUSE THE DEMAND FOR THE COMPANY'S SERVICES DEPENDS ON CONTINUED
GROWTH IN USE OF THE INTERNET, A SLOWING OF THIS GROWTH COULD HARM THE
DEVELOPMENT OF THE DEMAND FOR THE COMPANY'S SERVICES. Critical issues concerning
the commercial use of the Internet remain unresolved and may hinder the growth
of Internet use, especially in the business market the Company targets. Despite
growing interest in the varied commercial uses of the Internet, many businesses
have been deterred from purchasing Internet connectivity services for a number
of reasons, including inconsistent or unreliable quality of service, lack of
availability of cost-effective, high-speed options, a limited number of local
access points for corporate users, inability to integrate business applications
on the Internet, the need to deal with multiple and frequently incompatible
vendors and a lack of tools to simplify Internet access and use. Capacity
constraints caused by growth in the use of the Internet may, if left unresolved,
impede further development of the Internet to the extent that users experience
delays, transmission errors and other difficulties. Further, the adoption of the
Internet for commerce and communications, particularly by those individuals and
enterprises that have historically relied upon alternative means of commerce and
communication, generally requires an understanding and acceptance of a new way
of conducting business and exchanging information. In particular, enterprises
that have already invested substantial resources in other means of conducting
commerce and exchanging information may be particularly reluctant or slow to
adopt a new strategy that may make their existing personnel and infrastructure
obsolete. The failure of the market for business related Internet solutions to
further develop could cause the Company's revenues to grow more slowly than
anticipated and reduce the demand for its services.

         BECAUSE THE MARKET FOR THE COMPANY'S SERVICES, INCLUDING ITS INTERNET
CONNECTIVITY AND COLLOCATION SERVICES, IS NEW AND ITS VIABILITY IS UNCERTAIN,
THERE IS A RISK THE COMPANY'S SERVICES MAY NOT BE ACCEPTED. The Company faces
the risk that the market for its services, including its high performance
Internet connectivity and collocation services, might fail to develop, or
develop more slowly than expected, or that its services may not achieve
widespread market acceptance. This market has only recently begun to develop, is
evolving rapidly and likely will be characterized by an increasing number of
entrants. There is significant uncertainty as to whether this market ultimately
will prove to be viable or, if it becomes viable, that it will grow.
Furthermore, the Company may be unable to market and sell its services
successfully and cost-effectively to a sufficiently large number of customers.
The Company typically charges more for its services than do its competitors,
which may affect market acceptance of its services. Finally, if the Internet
becomes subject to a form of central management, or if the Internet backbone
providers establish an economic settlement arrangement regarding the exchange of
traffic between backbones, the problems of congestion, latency and data loss
addressed by the Company's Internet connectivity services could be largely
resolved and its core business rendered obsolete.


                                      23.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

         IF THE COMPANY IS UNABLE TO RESPOND EFFECTIVELY AND ON A TIMELY BASIS
TO RAPID TECHNOLOGICAL CHANGE, THE COMPANY MAY LOSE OR FAIL TO ESTABLISH A
COMPETITIVE ADVANTAGE IN ITS MARKET. The Internet connectivity industry is
characterized by rapidly changing technology, industry standards, customer needs
and competition, as well as by frequent new product and service introductions.
The Company may be unable to successfully use or develop new technologies, adapt
its network infrastructure to changing customer requirements and industry
standards, introduce new services or enhance its existing services on a timely
basis. Furthermore, new technologies or enhancements that the Company uses or
develops may not gain market acceptance. The Company's pursuit of necessary
technological advances may require substantial time and expense, and the Company
may be unable to successfully adapt its network and services to alternate access
devices and technologies.

         If its services do not continue to be compatible and interoperable with
products and architectures offered by other industry members, the Company's
ability to compete could be impaired. The Company's ability to compete
successfully is dependent, in part, upon the continued compatibility and
interoperability of its services with products and architectures offered by
various other industry participants. Although the Company intends to support
emerging standards in the market for Internet connectivity, there can be no
assurance that the Company will be able to conform to new standards in a timely
fashion, if at all, or maintain a competitive position in the market.


         NEW TECHNOLOGIES COULD DISPLACE THE COMPANY'S SERVICES OR RENDER THEM
OBSOLETE. New technologies and industry standards have the potential to replace
or provide lower cost alternatives to the Company's services. The adoption of
such new technologies or industry standards could render the Company's existing
services obsolete and unmarketable. For example, the Company's services rely on
the continued widespread commercial use of the set of protocols, services and
applications for linking computers known as Transmission Control
Protocol/Internetwork Protocol, or TCP/IP. Alternative sets of protocols,
services and applications for linking computers could emerge and become widely
adopted. A resulting reduction in the use of TCP/IP could render the Company's
services obsolete and unmarketable. The Company's failure to anticipate the
prevailing standard or the failure of a common standard to emerge could hurt its
business. Further, the Company anticipates the introduction of other new
technologies, such as telephone and facsimile capabilities, private networks,
multimedia document distribution and transmission of audio and video feeds,
requiring broadband access to the Internet, but there can be no assurance that
such technologies will create opportunities for the Company.

         SERVICE INTERRUPTIONS CAUSED BY SYSTEM FAILURES COULD HARM CUSTOMER
RELATIONS, EXPOSE THE COMPANY TO LIABILITY AND INCREASE THE COMPANY'S CAPITAL
COSTS. Interruptions in service to the Company's customers could harm the
Company's customer relations, expose the Company to potential lawsuits and
require the Company to spend more money adding redundant facilities. The
Company's operations depend upon its ability to protect its customers' data and
equipment, its equipment and its network infrastructure, including its
connections to its backbone providers, against damage from human error or "acts
of God." Even if the Company takes precautions, the occurrence of a natural
disaster or other unanticipated problem could result in interruptions in the
services the Company provides to its customers.

         CAPACITY CONSTRAINTS COULD CAUSE SERVICE INTERRUPTIONS AND HARM
CUSTOMER RELATIONS. Failure of the backbone providers and other Internet
infrastructure companies to continue to grow in an orderly manner could result
in capacity constraints leading to service interruptions to the Company's
customers. Although the national telecommunications networks and Internet
infrastructures have historically developed in an orderly manner, there is no
guarantee that this orderly growth will continue as more services, users and
equipment connect to the networks. Failure by the Company's telecommunications
and Internet service providers to provide the Company with the data
communications capacity it requires could cause service interruptions.

         THE COMPANY'S NETWORK AND SOFTWARE ARE VULNERABLE TO SECURITY BREACHES
AND SIMILAR THREATS WHICH COULD RESULT IN ITS LIABILITY FOR DAMAGES AND HARM ITS
REPUTATION. Despite the implementation of network security measures, the core of
the Company's network infrastructure is vulnerable to computer viruses,
break-ins, network attacks and similar disruptive problems. This could result in
the Company's liability for damages, and its reputation could suffer, thereby
deterring potential customers from working with the Company. Security problems
caused by third parties could lead to interruptions and delays or to the
cessation of service to the Company's customers. Furthermore, inappropriate use
of the network by third parties could also jeopardize the security of
confidential information stored in the Company's computer systems and in those
of its customers.

         Although the Company intends to continue to implement industry-standard
security measures, in the past some of these industry-standard measures have
occasionally been circumvented by third parties, although not in its system.
Therefore, there can be no assurance that the measures the Company implements
will not be circumvented. The costs and resources required to eliminate computer
viruses and alleviate other security problems may result in interruptions,
delays or cessation of service to the Company's customers, which could hurt its
business.


                                      24.

<PAGE>

                      INTERNAP NETWORK SERVICES CORPORATION

         SHOULD THE GOVERNMENT MODIFY OR INCREASE ITS REGULATION OF THE
INTERNET, THE PROVISION OF ITS SERVICES COULD BECOME MORE COSTLY. There is
currently only a small body of laws and regulations directly applicable to
access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, international, federal, state and local
governments may adopt laws and regulations, which affect the Internet. The
nature of any new laws and regulations and the manner in which existing and
new laws and regulations may be interpreted and enforced cannot be fully
determined. The adoption of any future laws or regulations might decrease the
growth of the Internet, decrease demand for the Company's services, impose
taxes or other costly technical requirements or otherwise increase the cost of
doing business on the Internet or in some other manner have a significantly
harmful effect on the Company or its customers. The government may also seek
to regulate some segments of the Company's activities as it has with basic
telecommunications services. Moreover, the applicability to the Internet of
existing laws governing intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment, personal
privacy and other issues is uncertain and developing. The Company cannot
predict the impact, if any, that future regulation or regulatory changes may
have on its business.

                                      25.

<PAGE>


                           PART II. OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On July 31, 2000, the Company issued an aggregate of approximately 2.0
million shares of its common stock in exchange for the outstanding capital stock
of VPNX.com. in an unregistered offering in reliance upon Rule 506 of Regulation
D under the Securities Act of 1933, as amended. The sales were made without
general solicitation or advertising. All recipients of the shares were
accredited investors.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits:

               2.1  Agreement and Plan of Merger and Reorganization, dated as of
                    July 6, 2000, by and among the Company, Virginia Acquisition
                    Corp., a Delaware corporation, and VPNX.com, Inc., a
                    Delaware corporation (incorporated by reference to the
                    Company's Current Report on Form 8-K, dated July 31, 2000,
                    as amended by the Company's amended Current Report on Form
                    8-K/A, dated October 4, 2000).

               4.1  Form of Registration Rights Agreement by and among the
                    Company and the stockholders of VPNX.com, Inc., a Delaware
                    corporation (incorporated by reference to the Company's
                    Current Report on Form 8-K, dated July 31, 2000, as amended
                    by the Company's amended Current Report on Form 8-K/A, dated
                    October 4, 2000).

               10.1 Amended and Restated InterNAP Network Services Corporation
                    1998 Stock Options/Stock Issuance Plan.

               10.2 Amended and Restated InterNAP Network Services Corporation
                    1999 Stock Incentive Plan for Non-Officers.

               27.1 Financial Data Schedule (filed only with the electronic
                    submission of Form 10-Q in accordance with the Edgar
                    requirements).

         (b)   Reports on Form 8-K:

               On September 5, 2000, the Company filed an amendment on Form
               8-K/A to its Current Report on Form 8-K filed on June 29, 2000
               announcing its acquisition of CO Space, Inc.

               On July 31, 2000, the Company filed a Current Report on Form 8-K
               announcing its acquisition of VPNX.com, Inc. and, on October 4, 
               2000, filed an amendment on Form 8-K/A to this July 31, 2000 
               Current Report on Form 8-K.


                                      26.

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on this 13th day of November,
2000.

                         INTERNAP NETWORK SERVICES CORPORATION
                         (Registrant)


                         By:             /s/ Paul E. McBride
                             --------------------------------------------------
                                           Paul E. McBride
                              SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                                 (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)


                                      27.

<PAGE>


                                  EXHIBIT INDEX

    EXHIBIT
     INDEX           TITLE
    -------      ------------
      2.1        Agreement and Plan of Merger and Reorganization, dated as of
                 July 6, 2000, by and among the Company, Virginia Acquisition
                 Corp., a Delaware corporation, and VPNX.com, Inc., a Delaware
                 corporation (incorporated by reference to the Company's Current
                 Report on Form 8-K, dated July 31, 2000, as amended by the
                 Company's amended Current Report on Form 8-K/A, dated October
                 4, 2000).

      4.1        Form of Registration Rights Agreement by and among the Company
                 and the stockholders of VPNX.com,Inc., a Delaware corporation
                 (incorporated by reference to the Company's Current Report on
                 Form 8-K, dated July 31, 2000, as amended by the Company's
                 amended Current Report on Form 8-K/A, dated October 4, 2000).

     10.1        Amended and Restated InterNAP Network Services Corporation 1998
                 Stock Options/Stock Issuance Plan.

     10.2        Amended and Restated InterNAP Network Services Corporation 1999
                 Stock Incentive Plan for Non-Officers.

     27.1        Financial Data Schedule.


                                      28.






<PAGE>
                                       
                      INTERNAP NETWORK SERVICES CORPORATION
                      1998 STOCK OPTION/STOCK ISSUANCE PLAN

                     AMENDED AND RESTATED SEPTEMBER 20, 2000


                                   ARTICLE I

                               GENERAL PROVISIONS

    SECTION 1.  PURPOSE

            This 1998 Stock  Option/Stock  Issuance  Plan is intended to 
promote  the  interests  of InterNAP Network Services Corp. (the 
"Corporation") by providing eligible individuals who are responsible for the 
management, growth and financial success of the Corporation or who otherwise 
render valuable services to the Corporation with the opportunity to acquire a 
proprietary interest, or increase their proprietary interest, in the 
Corporation and thereby encourage them to remain in the service of the 
Corporation.

            Capitalized  terms  used  herein  shall  have the  meanings  
ascribed  to such  terms in Section 6 of this Article I.

   SECTION 2.  STRUCTURE OF THE PLAN

            The Plan  shall be divided  into two  separate  components:  the  
Option  Grant  Program specified in Article II and the Stock Issuance Program 
specified in Article III. The provisions of Articles I, IV and V of the Plan 
shall apply to both the Option Grant Program and the Stock Issuance Program 
and shall accordingly govern the interests of all individuals in the Plan.

   SECTION 3.  ADMINISTRATION
 OF THE PLAN

       (a)  The Plan shall be administered by the Board. The Board at any 
time may appoint a Committee and delegate to such Committee some or all of 
the administrative powers allocated to the Board pursuant to the provisions 
of the Plan. Members of the Committee shall serve for such period of time as 
the Board may determine and shall be subject to removal by the Board at any 
time. The Board at any time may terminate the functions of the Committee and 
reassume all powers and authority previously delegated to the Committee.

       (b)  The Plan Administrator (either the Board or the Committee, to the 
extent the Committee is at the time responsible for the administration of the 
Plan) shall have full power and authority (subject to the provisions of the 
Plan) to establish such rules and regulations as it may deem appropriate for 
the proper plan administration and to make such determinations under, and 
issue such interpretations of, the Plan and any outstanding option grants or 
share issuances as it may deem necessary or advisable. Decisions of the Plan 
Administrator shall be final and binding on all parties who have an interest 
in the Plan or any outstanding option or share issuance.

       (c)  At such time as the Common Stock is publicly traded, in the 
discretion of the Board, a Committee may consist solely of two or more 
Outside Directors, in accordance with Section 162(m) of the Code, and/or 
solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. 
Within the scope of such authority, the Board or the Committee may (1) 
delegate to a committee of one or more members of the Board who are not 
Outside Directors the authority to grant Stock Awards to eligible persons who 
are either (a) not then Covered Employees and are not expected to be Covered 
Employees at the time of recognition of income resulting from such Stock 
Award or (b) not persons with respect to whom the Corporation wishes to 
comply with Section 162(m) of the Code and/or) (2) delegate to a committee of 
one or more members of the Board who are not Non-Employee Directors the 
authority to grant Stock Awards to eligible persons who are not then subject 
to Section 16 of the Exchange Act.

   SECTION 4.  OPTION GRANTS AND SHARE ISSUANCES

       (a)  The persons eligible to receive option grants pursuant to the 
Option Grant Program (each an "Optionee") and/or share issuances under the 
Stock Issuance Program (each a "Participant") are limited to the following:

            (1)  key employees (including officers and directors) of the 
Corporation (or its Parent or Subsidiary corporations, if any) who render 
services that contribute to the success and growth of the Corporation (or its 
Parent or Subsidiary corporations), or that reasonably may be anticipated to 
contribute to the future success and growth of the Corporation (or its Parent 
or Subsidiary corporations);

            (2)  the non-employee members of the Board or the non-employee 
members of the board of directors of any Parent or Subsidiary corporations; 
and

            (3)  those consultants or independent contractors who provide 
valuable services to the Corporation (or its Parent or Subsidiary 
corporations, if any).

       (b)  The Plan Administrator shall have full authority to determine: 
(i) with respect to the option grants made under the Plan, which eligible 
individuals are to receive option grants, the number of shares to be covered 
by each such grant, the status of the granted option as either an Incentive 
Option or a Non-Statutory Option, the time or times at which each granted 
option is to become exercisable and the maximum term for which the option may 
remain outstanding, and (ii) with respect to share issuances under the Stock 
Issuance Program, the number of shares to be issued to each Participant, the 
vesting schedule (if any) to be applicable to the issued shares, and the 
consideration to be paid by the individual for such shares.

       (c)  The Plan Administrator shall have the absolute discretion either 
to grant options in accordance with Article II of the Plan or to effect share 
issuances in accordance with Article III of the Plan.

   SECTION 5.  STOCK SUBJECT TO THE PLAN

       (a)  The stock issuable under the Plan shall be shares of the 
Corporation's authorized but unissued or reacquired Common Stock (the "Common 
Stock"). The 


                                       2


<PAGE>

maximum number of shares that may be issued over the term of the Plan shall 
not exceed four million thirty-five thousand (4,035,000) shares of Common 
Stock. The total number of shares issuable under the Plan shall be subject to 
adjustment from time to time in accordance with the provisions of Section 
5(c).

       (b)  Shares subject to (i) the portion of one or more outstanding 
options that are not exercised or surrendered prior to expiration or 
termination and (ii) outstanding options canceled in accordance with the 
cancellation-regrant provisions of Section 5 of Article II will be available 
for subsequent option grants or stock issuances under the Plan. Shares issued 
under either the Option Grant Program or the Stock Issuance Program (whether 
as vested or unvested shares) that are repurchased by the Corporation shall 
not be available for subsequent option grants or stock issuances under the 
Plan.

       (c)  If any change is made in the Common Stock subject to the Plan, or 
subject to any Stock Award, without the receipt of consideration by the 
Corporation (through merger, consolidation, reorganization, recapitalization, 
reincorporation, stock dividend, dividend in property other than cash, stock 
split, liquidating dividend, combination of shares, exchange of shares, 
change in corporate structure or other transaction not involving the receipt 
of consideration by the Corporation), the Plan will be appropriately adjusted 
in the class(es) and maximum number of securities subject to the Plan 
pursuant to Article I, Section 5(a) and the maximum number of securities 
subject to award to any person pursuant to subsection 5(e), and the 
outstanding Stock Awards will be appropriately adjusted in the class(es) and 
number of securities and price per share of Common Stock subject to such 
outstanding Stock Awards. The Board shall make such adjustments, and its 
determination shall be final, binding and conclusive. (The conversion of any 
convertible securities of the Corporation shall not be treated as a 
transaction "without receipt of consideration" by the Corporation.)

       (d)  Common Stock issuable under the Plan, whether under the Option 
Grant Program or the Stock Issuance Program, may be subject to such 
restrictions on transfer, repurchase rights or other restrictions as may be 
determined by the Plan Administrator.

       (e)  Subject to the provisions of Article I, Section 5(c) relating to 
adjustments upon changes in the shares of Common Stock, no Employee shall be 
eligible to be granted options covering more than two million (2,000,000) 
shares of Common Stock during any calendar year.

   SECTION 6.  DEFINITIONS

            The following definitions shall apply to the respective 
capitalized terms used herein:

            BOARD means the Board of Directors of InterNAP Network Services 
Corp.

            CAUSE shall have such meaning as is defined in the Participant's 
employment or consulting agreement with a Paticipating Company. If the 
Participant does not have an employment or consulting agreement with a 
Paticipating Company, or if such agreement does not define the term "Cause," 
then the term "Cause" shall mean: (i) misconduct or dishonesty that 
materially adversely affects a Paticipating Company, including without 
limitation (A) an act 


                                       3


<PAGE>

materially in conflict with the financial interests of a Paticipating 
Company, (B) an act that could damage the reputation or customer relations of 
a Paticipating Company, (C) an act that could subject a Paticipating Company 
to liability, (D) an act constituting sexual harassment or other violation of 
the civil rights of coworkers, (E) failure to obey any lawful instruction of 
the Board or any officer of a Paticipating Company and (F) failure to comply 
with, or perform any duty required under, the terms of any confidentiality, 
inventions or non-competition agreement the Participant may have with a 
Paticipating Company, or (ii) acts constituting the unauthorized disclosure 
of any of the trade secrets or confidential information of a Paticipating 
Company, unfair competition with a Paticipating Company or the inducement of 
any customer of a Paticipating Company to breach any contract with a 
Paticipating Company. The right to exercise any Option shall be suspended 
automatically during the pendency of any investigation by the Board or its 
designee, and/or any negotiations by the Board or its designee and the 
Participant, regarding any actual or alleged act or omission by the 
Participant of the type described in this section.

            CHANGE IN CONTROL means the transaction described in Article V, 
Section (b), which is referred to as a Change in Control or Corporate 
transaction.

            CODE means the Internal Revenue Code of 1986, as amended.

            COMMITTEE means either the Compensation Committee of the Board or 
another committee comprised of two or more members thereof and appointed 
pursuant to the Plan to function as the Plan Administrator.

            CORPORATION means InterNAP Network Services Corp., a Washington 
corporation.

            CORPORATE TRANSACTION means the transaction described in Article 
V, Section (b), which is referred to as a Change in Control or Corporate 
Transaction.

            COVERED EMPLOYEE means the chief executive officer and the four 
(4) other highest compensated officers of the Corporation for whom total 
compensation is required to be reported to shareholders under the Exchange 
Act, as determined for purposes of Section 162(m) of the Code.

            EMPLOYEE means an individual who is in the employ of the 
Corporation or one or more Parent or Subsidiary corporations. An optionee 
shall be considered to be an Employee for so long as such individual remains 
in the employ of the Corporation or one or more Parent or Subsidiary 
corporations, subject to the control and direction of the employer entity as 
to both the work to be performed and the manner and method of performance.

            EXCHANGE ACT means the Securities Exchange Act of 1934, as 
amended.

            EXERCISE DATE shall be the date on which written notice of the 
exercise of an outstanding option under the Plan is delivered to the 
Corporation. Such exercise shall be effected pursuant to a stock purchase 
agreement incorporating any repurchase rights or first refusal rights 
retained by the Corporation with respect to the Common Stock purchased under 
the option.


                                       4


<PAGE>

            FAIR MARKET VALUE of a share of Common Stock on any relevant date 
shall be determined in accordance with the following provisions:

            (a)  If the Common Stock is at the time listed or admitted to 
trading on any stock exchange, then the Fair Market Value shall be the 
closing selling price per share of Common Stock on the date in question on 
the stock exchange determined by the Plan Administrator to be the primary 
market for the Common Stock. If there is no reported sale of Common Stock on 
such exchange on the date in question, then the Fair Market Value shall be 
the closing selling price on the exchange on the last preceding date for 
which such quotation exists.

            (b)  If the Common Stock is not at the time listed or admitted to 
trading on any stock exchange but is traded in the over-the-counter market, 
the Fair Market Value shall be the mean between the highest bid and the 
lowest asked prices (or if such information is available the closing selling 
price) per share of Common Stock on the date in question in the 
over-the-counter market, as such prices are reported by the National 
Association of Securities Dealers through its NASDAQ National Market System 
or any successor system. If there are no reported bid and asked prices (or 
closing selling price) for the Common Stock on the date in question, then the 
mean between the highest bid and lowest asked prices (or closing selling 
price) on the last preceding date for which such quotations exist shall be 
determinative of Fair Market Value.

            (c)  If the Common Stock is at the time neither listed nor 
admitted to trading on any stock exchange nor traded in the over-the-counter 
market, or if the Plan Administrator determines that the valuation provisions 
of subsections (a) and (b) above will not result in a true and accurate 
valuation of the Common Stock, then the Fair Market Value shall be determined 
by the Plan Administrator after taking into account such factors as the Plan 
Administrator shall deem appropriate under the circumstances.

            INCENTIVE  OPTION means an incentive stock option that satisfies 
the  requirements of Section 422 of the Code.

            NON-EMPLOYEE DIRECTOR means a Director who either (i) is not a 
current Employee or Officer of the Corporation or its parent or a subsidiary, 
does not receive compensation (directly or indirectly) from the Corporation 
or its parent or a subsidiary for services rendered as a consultant or in any 
capacity other than as a Director (except for an amount as to which 
disclosure would not be required under Item 404(a) of Regulation S-K 
promulgated pursuant to the Securities Act ("Regulation S-K")), does not 
possess an interest in any other transaction as to which disclosure would be 
required under Item 404(a) of Regulation S-K and is not engaged in a business 
relationship as to which disclosure would be required under Item 404(b) of 
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for 
purposes of Rule 16b-3.

            NON-STATUTORY OPTION means an option not intended to meet the 
statutory requirements prescribed for an Incentive Option.

            OFFICER means a person who is an officer of the Corporation 
within the meaning of Section 16 of the Exchange Act and the rules and 
regulations promulgated thereunder.


                                      5


<PAGE>

            OUTSIDE DIRECTOR means a Director who either (i) is not a current 
employee of the Corporation or an "affiliated corporation" (within the 
meaning of Treasury Regulations promulgated under Section 162(m) of the 
Code), is not a former employee of the Corporation or an "affiliated 
corporation" receiving compensation for prior services (other than benefits 
under a tax qualified pension plan), was not an officer of the Corporation or 
an "affiliated corporation" at any time and is not currently receiving direct 
or indirect remuneration from the Corporation or an "affiliated corporation" 
for services in any capacity other than as a Director or (ii) is otherwise 
considered an "outside director" for purposes of Section 162(m) of the Code.

            PARENT corporation means any corporation (other than the 
Corporation) in an unbroken chain of corporations ending with the 
Corporation, provided each such corporation in the unbroken chain (other than 
the Corporation) owns, at the time of the determination, stock possessing 
fifty percent (50%) or more of the total combined voting power of all classes 
of stock in one of the other corporations in such chain.

            PARTICIPATING COMPANY means the Corporation, a Parent, or a 
Subsidiary.

            PERMANENT DISABILITY means the inability of an individual to 
engage in any substantial gainful activity by reason of any medically 
determinable physical or mental impairment which can be expect to result in 
death or which has lasted or can be expected to last for a continuous period 
of not less than 12 months.

            PLAN means this 1998 Stock Option/Stock Issuance Plan.

            PLAN ADMINISTRATOR means the Board or the Committee, to the 
extent the Committee is responsible for plan administration in accordance 
with Article I, Section 3.

            RULE 16b-3 means Rule 16b-3 promulgated under the Exchange Act or 
any successor to Rule 16b-3, as in effect from time to time.

            SECURITIES ACT means the Securities Act of 1933, as amended.

            SERVICE means the performance of services for the Corporation or 
one or more Parent or Subsidiary corporations by an individual in the 
capacity of an Employee, a non-employee member of the board of directors or 
an independent consultant or advisor, unless a different meaning is specified 
in the option agreement evidencing the option grant, the purchase agreement 
evidencing the purchased option shares or the issuance agreement evidencing 
any direct stock issuance. An optionee shall be deemed to remain in Service 
for so long as such individual renders services to the Corporation or any 
Parent or Subsidiary corporation on a periodic basis in the capacity of an 
Employee, a non-employee member of the board of directors or an independent 
consultant or advisor.

            STOCK AWARD means any right granted under the Plan including an 
Incentive Stock Option, Non-Statutory Option or stock issuance.

            STOCK AWARD AGREEMENT means any written agreement between the 
Corporation and the holder of a Stock Award evidencing the terms and 
conditions of the Stock Award. Each Stock Award Agreement shall be subject to 
the terms and conditions of the Plan.


                                       6


<PAGE>


            SUBSIDIARY corporation means each corporation (other than the 
Corporation) in an unbroken chain of corporations beginning with the 
Corporation, provided each such corporation (other than the last corporation) 
in the unbroken chain owns, at the time of the determination, stock 
possessing fifty percent (50%) or more of the total combined voting power of 
all classes of stock in one of the other corporations in such chain.

            TEN PERCENT SHAREHOLDER means the owner of stock (as determined 
under Section 424(d) of the Code) possessing ten percent (10%) or more of the 
total combined voting power of all classes of stock of the Corporation or any 
Parent or Subsidiary corporation.

                                  ARTICLE II

                              OPTION GRANT PROGRAM

   SECTION 1.  TERMS AND CONDITIONS OF OPTIONS

            Options  granted  pursuant  to the  Plan  shall  be  authorized  
by  action  of the Plan Administrator and, at the discretion of the Plan 
Administrator, may be either Incentive Options or Non-Statutory Options. Each 
granted option shall be evidenced by one or more instruments in the form 
approved by the Plan Administrator; provided, that each such instrument shall 
comply with and incorporate the terms and conditions specified below. In 
addition, each instrument evidencing an Incentive Option shall be subject to 
the applicable provisions of Section 2 of this Article II.

       (a)  OPTION PRICE.

            (1)  The option price per share shall be fixed by the Plan 
Administrator.

            (2)  The option price shall become immediately due upon exercise 
of the option, and subject to the provisions of Article IV, Section 2, shall 
be payable in cash or check drawn to the Corporation's order. Should the 
Corporation's outstanding Common Stock be registered under Section 12(g) of 
the Securities Exchange Act of 1934, as amended (the "1934 Act") at the time 
the option is exercised, then the option price may also be paid as follows:

                 (A) in shares of Common Stock held by the optionee for the 
       requisite period necessary to avoid a charge to the Corporation's 
       earnings for financial reporting purposes and valued at Fair Market 
       Value on the Exercise Date; or

                 (B) through a special sale and remittance procedure pursuant
       to which the Optionee is to (i) provide irrevocable written instructions
       to a designated brokerage firm to effect the immediate sale of the 
       purchased shares and remit to the Corporation, out of the sale proceeds,
       an amount sufficient to cover the aggregate option price payable for the
       purchased shares plus all applicable Federal and State income and 
       employment taxes required to be withheld by the Corporation by reason of
       such purchase and (ii) concurrently provide written directives to the 
       Corporation to deliver the certificates for the 


                                       7


<PAGE>

       purchased shares directly to such brokerage firm in order to effect the
       sale transaction.

       (b)  TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan 
shall be exercisable at such time or times, during such period, and for such 
number of shares as shall be determined by the Plan Administrator and set 
forth in the notice of grant and stock option agreement evidencing such 
option. No option granted under the Plan, however, shall have a term in 
excess of ten (10) years from the grant date. During the lifetime of the 
Optionee, the option shall be exercisable only by the Optionee and shall not 
be assignable or transferable by the Optionee otherwise than by will or by 
the laws of descent and distribution following the Optionee's death.

       (c)  TERMINATION OF SERVICE.

            (1)  Should the Optionee cease to remain in Service for any 
reason (including death or Permanent Disability) while holding one or more 
outstanding options under the Plan, then except to the extent otherwise 
provided pursuant to Section 6 of this Article II, each such option shall 
remain exercisable for the limited period of time (not to exceed twelve (12) 
months after the date of such cessation of Service) specified by the Plan 
Administrator in the option agreement. In no event, however, shall any such 
option be exercisable after the specified expiration date of the option term. 
During such limited period of exercisability, the option may not be exercised 
for more than that number of shares (if any) for which such option is 
exercisable on the date of the Optionee's cessation of Service. Upon the 
expiration of such period or (if earlier) upon the expiration of the option 
term, the option shall terminate and cease to be exercisable.

            (2)  Any option granted to an Optionee under the Plan and 
exercisable in whole or in part on the date of the Optionee's death may be 
subsequently exercised by the personal representative of the Optionee's 
estate or by the person or persons to whom the option is transferred pursuant 
to the Optionee's will or in accordance with the laws of descent and 
distribution. The maximum number of shares for which such option may be 
exercised shall be limited to the number of shares (if any) for which the 
option is exercisable on the date of the Optionee's cessation of Service. Any 
such exercise of the option must be effected prior to the EARLIER of the 
first anniversary of the date of the Optionee's death or the specified 
expiration date of the option term. Upon the occurrence of either such event, 
the option shall terminate and cease to be exercisable.

            (3)  Notwithstanding subsections (1) and (2) above, the Plan 
Administrator shall have discretion, exercisable either at the time the 
option is granted or at the time the Optionee ceases Service, to allow one or 
more outstanding options held by the Optionee to be exercised, during the 
limited period of exercisability following the Optionee's cessation of 
Service, not only with respect to the number of shares for which the option 
is exercisable at the time of the Optionee's cessation of Service but also 
with respect to one or more subsequent installments of purchasable shares for 
which the option otherwise would have become exercisable had such cessation 
of Service not occurred.


                                      8


<PAGE>

            (4)  Notwithstanding any provision of this Article II or any 
other provision of this Plan to the contrary, any options granted under this 
Plan shall terminate as of the date the Optionee ceases to be in the Service 
of the Corporation if the Optionee was terminated for "cause" or could have 
been terminated for "cause." If the Optionee has an employment or consulting 
agreement with the Corporation, the term "cause" shall have the meaning given 
that term in such employment or consulting agreement. If the Optionee does 
not have an employment or consulting agreement with the Corporation, or if 
such agreement does not define the term "cause," the term "cause" shall mean: 
(A) misconduct or dishonesty that materially adversely affects the 
Corporation, including without limitation (i) an act materially in conflict 
with the financial interests of the Corporation, (ii) an act that could 
damage the reputation or customer relations of the Corporation, (iii) an act 
that could subject the Corporation to liability, (iv) an act constituting 
sexual harassment or other violation of the civil rights of coworkers, (v) 
failure to obey any lawful instruction of the Board or any officer of the 
Corporation and (vi) failure to comply with, or perform any duty required 
under, the terms of any confidentiality, inventions or non-competition 
agreement the Optionee may have with the Corporation, or (B) acts 
constituting the unauthorized disclosure of any of the trade secrets or 
confidential information of the Corporation, unfair competition with the 
Corporation or the inducement of any customer of the Corporation to breach 
any contract with the Corporation. The right to exercise any option shall be 
suspended automatically during the pendency of any investigation by the Board 
or its designee, and/or any negotiations by the Board or its designee and the 
Optionee, regarding any actual or alleged act or omission by the Optionee of 
the type described in this section.

       (d)  SHAREHOLDER RIGHTS. An Optionee shall have none of the rights of a 
shareholder with respect to any shares covered by the option until such 
Optionee shall have exercised the option and paid the option price.

       (e)  REPURCHASE RIGHTS. The shares of Common Stock issued under the 
Plan shall be subject to certain repurchase rights of the Corporation in 
accordance with the following provisions:

            (1)  (A)  The Plan Administrator shall have the discretion to 
authorize the issuance of unvested shares of Common Stock under the Plan. 
Should the optionee cease Service or should the Corporation consummate a 
Corporate Transaction while the optionee is holding such unvested shares, the 
Corporation shall have the right to repurchase, at the option price paid per 
share, all or (at the discretion of the Corporation and with the consent of 
the Optionee) any portion of those such shares. The terms and conditions upon 
which such repurchase right shall be exercisable (including the period and 
procedure for exercise and the appropriate vesting schedule for the purchased 
shares) shall be established by the Plan Administrator and set forth in an 
instrument evidencing such right.

                 (B)  The  repurchase  right  shall be  assignable  to any  
person  or entity selected by the Corporation, including one or more of the 
Corporation's shareholders. If the selected assignee is other than a Parent 
or Subsidiary corporation, however, then the assignee must make a cash 
payment to the Corporation, upon the assignment of the repurchase right, in 
an amount equal to the amount by which the Fair Market Value of the unvested 
shares at the time 


                                      9


<PAGE>

subject to the assigned right exceeds the aggregate repurchase price payable 
for such unvested shares.

                 (C)  Upon the occurrence of a Corporate Transaction, the 
Plan Administrator may, at its sole discretion, (i) terminate all or any 
outstanding repurchase rights under the Plan and thereby cause the shares 
subject to such rights to vest immediately in full, (ii) arrange for all or 
any of the repurchase rights to be assigned to the successor corporation (or 
parent thereof) in connection with the Corporate Transaction or (iii) 
exercise the Corporation's right to repurchase any unvested shares 
contemporaneously with the consummation of the Corporate Transaction if such 
right is provided in the instrument pursuant to which such unvested shares 
were issued.

            (2)  Until such time as the Corporation's outstanding shares of 
Common Stock are first registered under Section 12(g) of the 1934 Act, the 
Corporation shall have the right of first refusal with respect to any 
proposed sale or other disposition by the Optionee (or any successor in 
interest by reason of purchase, gift or other mode of transfer) of any shares 
of Common Stock issued under the Plan. Such right of first refusal shall be 
exercisable by the Corporation (or its assignees) in accordance with the 
terms and conditions established by the Plan Administrator and set forth in 
the instrument evidencing such right.

   SECTION 2.  INCENTIVE OPTIONS

            The terms and conditions  specified  below shall be applicable to 
all Incentive  Options granted under the Plan. Incentive Options may be 
granted only to individuals who are Employees. Options that are specifically 
designated as Non-Statutory Options when issued under the Plan shall not be 
subject to the following terms and conditions.

            (a)  OPTION PRICE. The option price per share of the Common Stock 
subject to an Incentive Option shall in no event be less than one hundred 
percent (100%) of the Fair Market Value of a share of Common Stock on the 
grant date; PROVIDED, if the individual to whom the option is granted is at 
the time a Ten Percent Shareholder, then the option price per share shall not 
be less than one hundred ten percent (110%) of the Fair Market Value of the 
Common Stock on the grant date.

            (b)  DOLLAR LIMITATION. The aggregate Fair Market Value 
(determined as of the respective date or dates of grant) of the Common Stock 
for which one or more options granted to any Employee under this Plan (or any 
other option plan of the Corporation or any Parent or Subsidiary corporation) 
may for the first time become exercisable as incentive stock options under 
the Federal tax laws during any one calendar year shall not exceed the sum of 
one hundred thousand dollars ($100,000). To the extent the Employee holds two 
or more such options which become exercisable for the first time in the same 
calendar year, the foregoing limitation on the exercisability thereof as 
Incentive Options under the Federal tax laws shall be applied on the basis of 
the order in which such options are granted.

            (c)  OPTION TERM FOR TEN PERCENT SHAREHOLDER. No option granted 
to a Ten Percent Shareholder shall have a term in excess of five (5) years 
from the grant date.


                                      10


<PAGE>

            Except as modified by the  preceding  provisions  of this Section 
2, all the  provisions of the Plan shall be applicable to the Incentive 
Options granted hereunder.

   SECTION 3.  CORPORATE TRANSACTION

            (a)  The exercisability as incentive stock options under the 
Federal tax laws of any options accelerated in connection with the Corporate 
Transaction shall remain subject to the applicable dollar limitation of 
subsection 2(b) of this Article II.

            (b)  The grant of options under this Plan shall in no way affect 
the right of the Corporation to adjust, reclassify, reorganize or otherwise 
change its capital or business structure or to merge, consolidate, dissolve, 
liquidate or sell or transfer all or any part of its business or assets.

   SECTION 4.  CANCELLATION AND NEW GRANT OF OPTIONS

            The Plan  Administrator  shall have the  authority to effect,  at 
any time and from time to time, with the consent of the affected Optionees, 
the cancellation of any or all outstanding options under the Plan and to 
grant in substitution therefor new options under the Plan covering the same 
or different numbers of shares of Common Stock but having, in the case of an 
Incentive Option, an option price per share not less than one hundred percent 
(100%) of such Fair Market Value per share of Common Stock on the new grant 
date, or, in the case of a Ten Percent Shareholder, not less than one hundred 
and ten percent (110%) of such Fair Market Value.

   SECTION 5.  EXTENSION OF EXERCISE PERIOD

            The Plan  Administrator  shall have full power and  authority  to 
extend  (either at the time the option is granted or at any time that the 
option remains outstanding) the period of time for which the option is to 
remain exercisable following the Optionee's cessation of Service, from the 
limited period set forth in the option agreement, to such greater period of 
time as the Plan Administrator may deem appropriate under the circumstances. 
In no event, however, shall such option be exercisable after the specified 
expiration date of the option term.


                                   ARTICLE III

                             STOCK ISSUANCE PROGRAM

   SECTION 1.  TERMS AND CONDITIONS OF STOCK ISSUANCES

            Shares of Common  Stock  shall be  issuable  under the Stock  
Issuance  Program  through direct and immediate issuances without any 
intervening stock option grants. Each such stock issuance shall be evidenced 
by a Stock Issuance Agreement ("Issuance Agreement") that complies with the 
terms and conditions of this Article III.

            (a)  ISSUE PRICE.


                                       11


<PAGE>


                 (1)  Shares may, in the absolute discretion of the Plan 
Administrator, be issued for consideration with a value less than one-hundred 
percent (100%) of the Fair Market Value of the issued shares.

                 (2)  Shares shall be issued under the Plan for such 
consideration as the Plan Administrator shall from time to time determine, 
provided that in no event shall shares be issued for consideration other than:

                      (A)  cash or check payable to the Corporation,

                      (B)  a promissory note in favor of the Corporation, which
            may be subject to cancellation by the Corporation in whole or in 
            part upon such terms and conditions as the Plan Administrator shall
            specify, or

                      (C)  services rendered.

            (b)  VESTING SCHEDULE.

                 (1)  In the discretion of the Plan Administrator, the 
interest of a Participant in the shares of Common Stock issued to such 
Participant under the Plan may be fully and immediately vested upon issuance 
or may vest in one or more installments in accordance with the vesting 
provisions of subsection (b)(4) below. Except as otherwise provided in 
subsection (b)(2), the Participant may not transfer any issued shares in 
which such Participant does not have a vested interest. Accordingly, all 
unvested shares issued under the Plan shall bear the restrictive legend 
specified in Article IV, Section 1, until such legend is removed in 
accordance with such section. Regardless of whether or not a Participant's 
interest in such shares is vested, such Participant shall be entitled to 
exercise all the rights of a shareholder with respect to the shares of Common 
Stock issued to Participant hereunder, including the right to vote such 
shares and to receive any cash dividends or other distributions paid or made 
with respect to such shares. Any new, additional or different shares of stock 
or other property (including money paid other than as a regular cash 
dividend) that the holder of unvested Common Stock may have the right to 
receive with respect to such unvested shares by reason of a stock dividend, 
stock split, reclassification or other change affecting the outstanding 
Common Stock as a class without the Corporation's receipt of consideration 
therefor shall be issued subject to (i) the same vesting requirements under 
subsection (b)(4) applicable to the unvested Common Stock and (ii) such 
escrow arrangements as the Plan Administrator shall deem appropriate.

                 (2)  As used in this Article III, the term "transfer" shall 
include (without limitation) any sale, pledge, encumbrance, gift or other 
disposition of such shares. A Participant shall have the right to make a gift 
of unvested shares acquired under the Stock Issuance Program to Participant's 
spouse, parents or issue or to a trust established for such spouse, parents 
or issue, provided the donee of such shares delivers to the Corporation, at 
the time of such donee's acquisition of the gifted shares, a written 
agreement to be bound by all the provisions of the Plan and the Issuance 
Agreement executed by the Participant.

                 (3)  Should the Participant cease Service for any reason 
while Participant's interest in the Common Stock remains unvested, then the 
Corporation shall have the 


                                      12


<PAGE>

right to repurchase, at the original purchase price paid by the Participant, 
all or (at the discretion of the Corporation and with the consent of the 
Participant) any portion of the shares in which the Participant is not at the 
time vested, and the Participant shall thereafter cease to have any further 
shareholder rights with respect to the repurchased shares.

                 (4)  Any shares of Common Stock issued under the Stock 
Issuance Program that are not vested at the time of such issuance shall vest 
in one or more installments thereafter. The elements of the vesting schedule, 
specifically, the performance or service objectives to be completed or 
achieved, the number of installments in which the shares are to vest, the 
interval or intervals (if any) that are to lapse between installments and the 
effect that death, Permanent Disability or other event designated by the Plan 
Administrator is to have upon the vesting schedule, shall be determined by 
the Plan Administrator and specified in the Issuance Agreement.

                 (5)  In its discretion, the Plan Administrator may elect not 
to exercise, in whole or in part, its repurchase rights with respect to any 
unvested Common Stock or other assets that would otherwise at the time be 
subject to repurchase pursuant to the provisions of subsection (b)(3) above. 
Such an election shall result in the immediate vesting of the Participant's 
interest in the shares of Common Stock as to which the election applies.

                 (6)  No shares of Common Stock or other assets shall be 
issued or delivered under this Plan unless and until, in the opinion of 
counsel for the Corporation (or its successor in the event of any Corporate 
Transaction), there shall have been compliance with all applicable 
requirements of the securities exchange on which stock of the same class is 
then listed and all other requirements of Federal and state law or of any 
regulatory bodies having jurisdiction over such issuance and delivery.

            (c)  RIGHT OF FIRST REFUSAL. The Plan Administrator may also in 
its discretion establish as a term and condition of the issuance of one or 
more shares of Common Stock under the Stock Issuance Program that the 
Corporation shall have a right of first refusal with respect to any proposed 
disposition by the Participant (or any successor in interest by reason of 
purchase, gift or other mode of transfer) of one or more shares of such 
Common Stock. Such right of first refusal shall be exercisable by the 
Corporation (or its assignees) in accordance with the terms and conditions 
specified in the instrument evidencing such right.

                                       
                                    ARTICLE IV

                                  MISCELLANEOUS

   SECTION 1.  STOCK LEGEND.  Each certificate representing shares of Common 
Stock (or other securities) issued pursuant to the Plan may bear a 
restrictive legend substantially as follows:

            (1)   "This certificate and the shares represented hereby may not be
                  sold, assigned, transferred, encumbered, or in any manner
                  disposed of except in conformity with the terms of written
                  agreements between the Corporation and the registered holder


                                      13


<PAGE>

                  of the shares (or the predecessor in interest to the shares).
                  Upon written request, the Corporation will furnish without
                  charge a copy of such agreements to the holder hereof."

   SECTION 2.  LOANS

       (a)  The Plan Administrator, in its discretion, may assist any 
Optionee or Participant (including an Optionee or Participant who is an 
officer or director of the Corporation) in the exercise of one or more 
options granted to such Optionee under the Article II Option Grant Program or 
the purchase of one or more shares issued to such Participant under the 
Article III Stock Issuance Program, including the satisfaction of any Federal 
and State income and employment tax obligations arising therefrom, by

            (1)  authorizing the extension of a loan from the Corporation to 
such Optionee or Participant, or

            (2)  permitting the Optionee or Participant to pay the option 
price or purchase price for the purchased Common Stock in installments over a 
period of years.

       (b)  The terms of any loan or installment method of payment (including 
the interest rate and terms of repayment applicable thereto) shall be 
established by the Plan Administrator. Loans or installment payments may be 
granted with or without security or collateral; provided, that any loan made 
to a consultant or other non-employee advisor must be secured by property 
other than the purchased shares of Common Stock. In all events the maximum 
credit available to each Optionee or Participant may not exceed the sum of 
(i) the aggregate option price or purchase price payable for the purchased 
shares (less the par value of such shares rounded up to the nearest whole 
cent) plus (ii) any Federal and State income and employment tax liability 
incurred by the Optionee or Participant in connection with such exercise or 
purchase.

       (c)  The Plan Administrator, in its discretion, may determine that one 
or more loans extended under the financial assistance program shall be 
subject to forgiveness by the Corporation in whole or in part upon such terms 
and conditions as the Board deems appropriate.

   SECTION 3.  AMENDMENT OF THE PLAN AND AWARDS

       (a)  The Board shall have complete and exclusive power and authority 
to amend or modify the Plan in any or all respects whatsoever; PROVIDED, that 
no such amendment or modification shall adversely affect the rights and 
obligations of an Optionee with respect to options at the time outstanding 
under the Plan, nor adversely affect the rights of any Participant with 
respect to Common Stock issued under the Plan prior to such action, unless 
the Optionee or Participant consents to such amendment. In addition, the 
Board shall not, without the approval of the Corporation's shareholders, 
amend the Plan to (i) materially increase the maximum number of shares 
issuable under the Plan (except for permissible adjustments under Article I, 
Section 5(c)), (ii) materially increase the benefits accruing to individuals 
who participate in the Plan, or (iii) materially modify the eligibility 
requirements for participation in the Plan.


                                       14


<PAGE>

            (b)  Options to purchase shares of Common Stock may be granted 
under the Option Grant Program and shares of Common Stock may be issued under 
the Stock Issuance Program, which in both instances are in excess of the 
number of shares then available for issuance under the Plan, provided any 
excess shares actually issued under the Option Grant Program or the Stock 
Issuance Program are held in escrow until the Corporation's shareholders 
approve an amendment that sufficiently increases the number of shares of 
Common Stock available for issuance under the Plan. If such shareholder 
approval is not obtained within twelve (12) months after the date the initial 
excess stock option grants or direct stock issuances are made, then any 
unexercised options representing such excess shall terminate and cease to be 
exercisable and the Corporation shall promptly refund to the Optionees and 
Participants the option or purchase price paid for any excess shares issued 
under the Plan and held in escrow, together with interest (at the applicable 
Short Term Federal Rate) thereon for the period the shares were held in 
escrow.

   SECTION 4.  EFFECTIVE DATE AND TERM OF PLAN

            (a)  The Plan shall become effective when adopted by the Board, 
but no option granted under the Plan shall become exercisable, and no shares 
shall be issuable under the Stock Issuance Program, unless and until the Plan 
shall have been approved by the Corporation's shareholders. If such 
shareholder approval is not obtained within twelve (12) months after the date 
of the Board's adoption of the Plan, then all options previously granted 
under the Plan shall terminate, and no further options shall be granted and 
no shares shall be issued under the Stock Issuance Program. Subject to such 
limitation, the Plan Administrator may grant options under the Plan at any 
time after the effective date and before the date fixed herein for 
termination of the Plan.

            (b)  The Plan shall terminate upon the earlier of (i) ten years 
after the adoption of the Plan or (ii) the date on which all shares available 
for issuance under the Plan have been issued or canceled pursuant to the 
exercise of options granted under Article II or the issuance of shares under 
Article III. If the date of termination is determined under clause (i) above, 
then no options outstanding on such date under Article II and no shares 
issued and outstanding on such date under Article III shall be affected by 
the termination of the Plan, and such securities shall thereafter continue to 
have force and effect in accordance with the provisions of the stock option 
agreements evidencing such Article II options and the stock purchase 
agreements evidencing the issuance of such Article III shares.

   SECTION 5.  USE OF PROCEEDS

            Any cash  proceeds  received by the  Corporation  from the  
issuance of shares of Common Stock under the Plan shall be used for general 
corporate purposes.

   SECTION 6.  WITHHOLDING

            The Corporation's obligation to deliver shares upon the exercise  
of any options granted under Article II or upon the purchase of any shares 
issued under Article III shall be subject to the satisfaction of all 
applicable Federal, state and local income and employment tax withholding 
requirements.

                                       15


<PAGE>

   SECTION 7.  REGULATORY APPROVALS

            The implementation of the Plan, the granting of any options  
under the Option  Grant Program, the issuance of any shares under the Stock 
Issuance Program, and the issuance of Common Stock upon the exercise of the 
option grants made hereunder shall be subject to the Corporation's 
procurement of all approvals and permits required by regulatory authorities 
having jurisdiction over the Plan, the options granted under it, and the 
Common Stock issued pursuant to it.

   SECTION 8.  ACCELERATION OF EXERCISABILITY AND VESTING

            The Board shall have the power to  accelerate  the time at which 
a Stock Award may first be exercised or the time during which a Stock Award 
or any part thereof will vest in accordance with the Plan, notwithstanding 
the provisions in the Stock Award stating the time at which it may first be 
exercised or the time during which it will vest.


                                    ARTICLE V

                   CHANGE IN CONTROL OR CORPORATE TRANSACTIONS

       (a)  DISSOLUTION OR LIQUIDATION. In the event of a dissolution or 
liquidation of the Corporation, then all outstanding Options shall terminate 
immediately prior to such event.

       (b)  CERTAIN CHANGES IN CONTROL. In the event of (i) a sale, lease or 
other disposition of all or substantially all of the assets of the 
Corporation, (ii) a merger or consolidation in which the Corporation is not 
the surviving corporation or (iii) a reverse merger in which the Corporation 
is the surviving corporation but the shares of Common Stock outstanding 
immediately preceding the merger are converted by virtue of the merger into 
other property, whether in the form of securities, cash or otherwise 
(collectively, a "Change in Control" or "Corporate Transaction"), then any 
surviving corporation or acquiring corporation may assume or continue any 
Stock Awards outstanding under the Plan or may substitute similar stock 
awards (including an award to acquire the same consideration paid to the 
shareholders in the transaction described in this paragraph) for those 
outstanding under the Plan. In the event any surviving corporation or 
acquiring corporation refuses to assume or continue such Stock Awards or to 
substitute similar stock awards for those outstanding under the Plan, then 
with respect to Stock Awards held by Participants whose Service has not 
terminated, the vesting of such Stock Awards (and, if applicable, the time 
during which such Stock Awards may be exercised) shall be accelerated in 
full, and the Stock Awards shall terminate if not exercised (if applicable) 
at or prior to such event. With respect to any other Stock Awards outstanding 
under the Plan, such Stock Awards shall terminate if not exercised (if 
applicable) prior to such event.

       (c)  TERMINATION OF SERVICE FOLLOWING A CHANGE IN CONTROL. Unless 
otherwise specified in the applicable Stock Award Agreement, in the event of 
the occurrence of a Change in Control and provided that a participant's Stock 
Award remains in effect following such Change in Control or is assumed, 
continued or substituted for any similar stock award in connection with the 
Change in Control, then, if such participant's Service is terminated by the 


                                      16


<PAGE>

Corporation without Cause within thirteen (13) months following the effective 
date of the Change in Control, all Stock Awards held by such participant (or 
any substituted stock awards) shall, as of the date of such termination of 
Service, vest in full and become fully exercisable (if applicable) to the 
extent not previously vested or exercisable. Such Stock Awards shall remain 
exercisable until they expire in accordance with their terms. For the 
purposes of this section, Cause shall have the same meaning as is defined in 
Article II, Section 1(c)(4).

            (d)  SECURITIES ACQUISITION. In the event of an acquisition by 
any person, entity or group within the meaning of Section 13(d) or 14(d) of 
the Exchange Act, or any comparable successor provisions (excluding any 
employee benefit plan, or related trust, sponsored or maintained by the 
Corporation or an Affiliate) of the beneficial ownership (within the meaning 
of Rule 13d-3 promulgated under the Exchange Act, or comparable successor 
rule) of securities of the Corporation representing at least fifty percent 
(50%) of the combined voting power entitled to vote in the election of 
Corporation's Board of Directors, then with respect to Stock Awards held by 
Participants whose Service has not terminated, the vesting of such Stock 
Awards (and, if applicable, the time during which such Stock Awards may be 
exercised) shall be accelerated in full. Such Stock Awards shall remain 
exercisable until they expire in accordance with their terms.

            (e)  PARACHUTE PAYMENTS. If any payment or benefit a Participant 
would receive in connection with a Change in Control from the Corporation or 
otherwise ("Payment") would (i) constitute a "parachute payment" within the 
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the 
"Code"), and (ii) but for this sentence, be subject to the excise tax imposed 
by Section 4999 of the Code (the "Excise Tax"), then such Payment shall be 
reduced to the Reduced Amount. The "Reduced Amount" shall be either (x) the 
largest portion of the Payment that would result in no portion of the Payment 
being subject to the Excise Tax or (y) the largest portion, up to and 
including the total, of the Payment, whichever amount, after taking into 
account all applicable federal, state and local employment taxes, income 
taxes, and the Excise Tax (all computed at the highest applicable marginal 
rate), results in Participant's receipt, on an after-tax basis, of the 
greater amount of the Payment notwithstanding that all or some portion of the 
Payment may be subject to the Excise Tax. If a reduction in payments or 
benefits constituting "parachute payments" is necessary so that the Payment 
equals the Reduced Amount, reduction shall occur in the following order 
unless the Participant elects in writing a different order (PROVIDED, 
HOWEVER, that such election shall be subject to Corporation approval if made 
on or after the effective date of the Change of Control): reduction of cash 
payments; cancellation of accelerated vesting of stock awards; reduction of 
employee benefits. In the event that acceleration of vesting of stock award 
compensation is to be reduced, such acceleration of vesting shall be 
cancelled in the reverse order of the date of grant of the Participant's 
stock awards unless the Participant elects in writing a different order for 
cancellation.

            The accounting firm engaged by the Corporation for general audit 
purposes as of the day prior to the effective date of the Change in Control 
shall perform the foregoing calculations. If the accounting firm so engaged 
by the Corporation is serving as accountant or auditor for the individual, 
entity or group effecting the Change in Control, the Corporation shall 
appoint a nationally recognized accounting firm to make the determinations 
required hereunder. The Corporation shall bear all expenses with respect to 
the determinations by such accounting firm required to be made hereunder.


                                      17


<PAGE>

            The accounting firm engaged to make the determinations hereunder 
shall provide its calculations, together with detailed supporting 
documentation, to the Corporation and Participant within fifteen (15) 
calendar days after the date on which Participant's right to a Payment arises 
(if requested at that time by the Corporation or Participant) or at such 
other time as requested by the Corporation or Participant. If the accounting 
firm determines that no Excise Tax is payable with respect to a Payment, 
either before or after the application of the Reduced Amount, it shall 
furnish the Corporation and Participant with an opinion reasonably acceptable 
to Participant that no Excise Tax will be imposed with respect to such 
Payment. Any good faith determination of the accounting firm made hereunder 
shall be final, binding and conclusive upon the Corporation and Participant.


                                     18



<PAGE>



                              AMENDED AND RESTATED
                      INTERNAP NETWORK SERVICES CORPORATION
                   1999 STOCK INCENTIVE PLAN FOR NON-OFFICERS


(Originally adopted on June 28, 1999 as the CO SPACE Stock Incentive Plan, 
amended on December 22, 1999, January 11, 2000, and March 30, 2000 and 
assumed by InterNap Network Services Corporation in connection with the 
Merger Agreement dated May 26, 2000. Amended and Restated as the InterNAP 
Network Services Corporation 1999 STOCK INCENTIVE PLAN FOR NON-OFFICERS on 
September 20, 2000)

     1.   PURPOSE.  This 1999 Stock Incentive Plan For Non-Officers (the 
"Plan") is intended to provide incentives: (a) to non-officer employees and 
consultants of InterNAP Network Services Corporation, a Delaware corporation 
(the "Company"), and any present or future parent or subsidiaries of the 
Company (collectively, "Related Corporations") by providing them with 
opportunities to purchase stock in the Company pursuant to Non-Qualified 
Stock Options ("NSOs") that do not qualify as Incentive Stock Options under 
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and 
(b) to non-officer employees and consultants of the Company and Related 
Corporations by providing them with opportunities to receive awards of stock 
in
 the Company whether such stock awards are in the form of bonus shares, 
deferred stock awards, or of performance share awards (the "Awards"), and (c) 
to non-officer employees and consultants of the Company and Related 
Corporations by providing them with opportunities to make direct purchases of 
restricted stock in the Company ("Restricted Stock Purchases"). Non-Qualified 
Options are referred to hereafter as "Option." Options, Awards and 
authorizations to make Restricted Stock Purchases are referred to hereafter 
individually as a "Stock Right" and collectively as "Stock Rights." Documents 
evidencing the award of Stock Rights may be referred to collectively as 
"Stock Rights Agreements." As used herein, the terms "parent" and 
"subsidiary" mean "parent corporation" and "subsidiary corporation", 
respectively, as those terms are defined in Section 424 of the Code.

     2.  ADMINISTRATION OF THE PLAN.

         A.  BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be 
administered by the Board of Directors of the Company (the "Board"). The 
Board may appoint a Compensation Committee or a Stock Incentive Plan 
Committee (as the case may be, the "Committee") of two (2) or more of its 
members to administer the Plan and to grant Stock Rights hereunder, provided 
such Committee is delegated such powers in accordance with state law. (All 
references in this Plan to the "Committee" shall mean the Board if no such 
Compensation Committee or Stock Incentive Plan Committee has been so 
appointed).

         B.  AUTHORITY OF BOARD OR COMMITTEE. Subject to the terms of the 
Plan, the Committee shall have the authority to: (i) determine the employees 
of the Company and Related Corporations to whom Options may be granted; (ii) 
determine the time or times at which Options or Awards may be granted or 
Restricted Stock Purchases made; (iii) determine the exercise price of shares 
subject to each Option, which price shall not be less than the minimum price 
specified in paragraph 6, and the purchase price of shares subject to each 
Restricted Stock Purchase or Award; (iv) determine (subject to paragraph 7) 
the time or times when each Option shall become exercisable and the duration 
of the exercise period; (v) determine whether restrictions such as 


                                      1.


<PAGE>

repurchase options are to be imposed on shares subject to Options, Awards and 
Restricted Stock Purchases and the nature of such restrictions, if any; (vi) 
impose such other terms and conditions with respect to capital stock issued 
pursuant to Stock Rights not inconsistent with the terms of this Plan as it 
deems necessary or desirable; and (vii) interpret the Plan and prescribe and 
rescind rules and regulations relating to it.

     The interpretation and construction by the Committee of any provisions 
of the Plan or of any Stock Right granted under it shall be final unless 
otherwise determined by the Board. The Committee may from time to time adopt 
such rules and regulations for carrying out the Plan as it may deem best. No 
member of the Board or the Committee shall be liable for any action or 
determination made in good faith with respect to the Plan or any Stock Right 
granted under it.

         C.  DELEGATION OF AUTHORITY TO GRANT AWARDS TO OFFICER. Without 
limiting the foregoing, the Board, in its discretion, may also delegate to a 
single officer of the Company who is a member of the Board (to the extent 
consistent with state law) all or part of the Board's or Committee's 
authority and duties with respect to the granting of Stock Rights to 
individuals. Such officer (the "Delegated Officer") shall act as a one member 
committee of the Board, and shall in any event be subject to the same 
limitations as are applicable to the Committee. References to the Committee 
in this Plan shall also include the Delegated Officer, but only to the extent 
consistent with the authorities and duties delegated to the Delegated Officer 
by the Board. The Board may revoke or amend the terms of a delegation at any 
time but such action shall not invalidate any prior actions of the Delegated 
Officer that were consistent with the terms of the Plan.

         D.  COMMITTEE ACTIONS. The Committee may select one of its members 
as its chairman and shall hold meetings at such time and places as it may 
determine. Acts by a majority of the Committee, acting at a meeting (whether 
held in person or by teleconference), or acts reduced to or approved in 
writing by all of the members of the Committee, shall be the valid acts of 
the Committee. From time to time the Board may increase the size of the 
Committee and appoint additional members thereof, remove members (with or 
without cause) and appoint new members in substitution therefor, fill 
vacancies however caused, or remove all members of the Committee and 
thereafter directly administer the Plan, subject to compliance with paragraph 
2A.

     3.  ELIGIBLE EMPLOYEES AND OTHERS. Stock Rights may be granted to any 
employee, consultant or advisor of the Company or any Related Corporation. 
However, notwithstanding any other provision herein to the contrary, no 
person shall be eligible for a Stock Right under the Plan (i) who holds a 
position of vice president or higher of the Company or Related Corporations, 
(ii) who would be considered an "officer" or " director" within the meaning 
of those terms under Rule 4460(i)(1)(A) of the National Association of 
Securities Dealers Manual (or such amended or successor rule), (iii) who 
would be considered a person subject to Section 16b of the Exchange Act of 
1934, as amended (and regulations promulgated thereunder), or (iv) whose 
eligibility would require approval of the Plan by the stockholders of the 
Company under any law or regulation or the rules of any stock exchange or 
market system upon which the Common Stock may then be listed. If not 
inconsistent with any such law, regulation or rule, a Stock Right may be 
granted to a person, not previously employed by the Company or a Related 
Corporation, as an inducement essential to entering into an employment 
contract with the Company or a Related Corporation.


                                      2.


<PAGE>

     The Committee may take into consideration a recipient's individual 
circumstances in determining whether to grant a Stock Right. Granting a Stock 
Right to any individual or entity shall neither entitle that individual or 
entity to, nor disqualify him from, participation in any other grant of Stock 
Rights.

     4.  STOCK. The stock subject to Stock Rights shall be the common stock 
of the Company (the "Common Stock"), or shares of Common Stock reacquired by 
the Company in any manner. The aggregate number of shares which may be issued 
pursuant to the Plan is 1,346,840, subject to adjustment as provided in 
paragraph 13.

     5.  GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan 
at any time after June 29, 1999 and prior to June 28, 2009. The date of grant 
of a Stock Right under the Plan will be the date specified by the Committee 
at the time it grants the Stock Right or such date that is specified in the 
instrument or agreement evidencing such Stock Right; provided, however, that 
such date shall not be prior to the date on which the Committee acts to 
approve the grant.

     6.  MINIMUM OPTION PRICE.

         A.  PRICE FOR INCENTIVE STOCK OPTIONS.  Incentive Stock Options 
shall not be granted under this Plan.

         B.  DETERMINATION OF FAIR MARKET VALUE. "Fair Market Value" shall be 
determined as of the last business day for which the prices or quotes 
discussed in this sentence are available prior to the date such Option is 
granted and shall mean (i) the average (on that date) of the high and low 
prices of the Common Stock on the principal national securities exchange on 
which the Common Stock is traded, if the Common Stock is then traded on a 
national securities exchange; or (ii) the last reported sale price (on that 
date) of the Common Stock on the NASDAQ National Market List, if the Common 
Stock is not then traded on a national securities exchange; or (iii) the 
closing bid price (or average of bid prices) last quoted (on that date) by an 
established quotation service for over-the-counter securities, if the Common 
Stock is not then traded on a national securities exchange and is not 
reported on the NASDAQ National Market List.

     7.  OPTION DURATION. Subject to earlier termination as provided in 
paragraphs 9, 10, and 13, each Option shall expire on the date specified by 
or shall have such duration as may be specified by the Committee and set 
forth in the original stock option agreement granting such Option, but not 
more than ten years from the date of grant. Options shall expire on the date 
specified in the agreement granting such Options, subject to extension as 
determined by the Committee.

     8.  EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 
through 13, each Option granted under the Plan shall be exercisable as 
follows:

         A.  VESTING. Unless otherwise specified by the Committee, Options 
granted to employees shall vest in accordance with the following schedule: 
(a) as to 25% of the shares subject to the Option, on the first anniversary 
of the date of grant of the Option; and (b) as to the remaining 75% of the 
shares subject to the Option, in 36 equal monthly installments (such monthly 
vesting dates shall commence one months following such first annual 
anniversary on 


                                      3.


<PAGE>

the exact day of the month as the date of such first annual anniversary, and 
continue at one month intervals thereafter, except with respect to any month 
that does not have such date, in which case the date in such month shall be 
the last day of such month). The Committee may also specify such other 
conditions precedent as it deems appropriate to the exercise of an Option.

         B.  FULL VESTING OF INSTALLMENTS. Once an installment becomes 
exercisable it shall remain exercisable until expiration or termination of 
the Option, unless otherwise specified by the Committee.

         C.  PARTIAL EXERCISE. Each Option or installment may be exercised at 
any time or from time to time, in whole or in part, for up to the total 
number of shares with respect to which it is then exercisable, provided that 
the Committee may specify a certain minimum number or percentage of the 
shares issuable upon exercise of any Option that must be purchased upon any 
exercise.

         D. ACCELERATION OF VESTING. The Committee shall have the right to 
accelerate the date of exercise of any installment of any Option, despite the 
fact that such acceleration may cause the application of Sections 280G and 
4999 of the Code if a Change in Control Event, as defined below in paragraph 
13C, occurs.

     9.  TERMINATION OF EMPLOYMENT. Nothing in the Plan shall be deemed to 
give any grantee of any Stock Right the right to be retained in employment or 
other service by the Company or any Related Corporation for any period of 
time.

     Notwithstanding anything contained in this paragraph 9 to the contrary, 
the Board or Committee may establish rules in particular stock option 
agreements with respect to Misconduct, committed by a grantee of a Stock 
Right. Misconduct shall have the same meaning as the term Cause, as defined 
below.

     In the event that grantee's Service terminates (other than upon death or 
Disability or for Cause), the grantee may exercise his or her Option (to the 
extent that the grantee was entitled to exercise such Option as of the date 
of termination) but only within such period of time ending on the earlier of 
(i) the date three (3) months following the termination of the grantee's 
Service, or (ii) the expiration of the term of the Option as set forth in the 
Option. If, after termination, the grantee does not exercise his or her 
Option within the time specified in the Option, the Option shall terminate. 
In the event an grantee's Service terminates for Cause, then his or her 
Option shall terminate immediately upon such event.

     10. DEATH; DISABILITY.

         A.  DEATH.  If an optionee ceases to be employed by the Company and 
all Related Corporations by reason of his death, or if the employee dies 
within the thirty (30) day period after the employee ceases to be employed by 
the Company and all Related Corporations, any Option of his may be exercised, 
to the extent of the number of shares with respect to which he could have 
exercised it on the date of his death, by his estate, personal representative 
or beneficiary who has acquired the Option by will or by the laws of descent 
and distribution, at any time prior to the earlier of the specified 
expiration date of the Option or one hundred and eighty (180) days from the 
date of such optionee's death.


                                      4.


<PAGE>

         B.  DISABILITY.  If an optionee ceases to be employed by the Company 
and all Related Corporations by reason of his disability, he shall have the 
right to exercise any Option held by him on the date of termination of 
employment, to the extent of the number of shares with respect to which he 
could have exercised it on that date, at any time prior to the earlier of the 
specified expiration date of the Option or one (1) year from the date of the 
termination of the optionee's employment. For the purposes of the Plan, the 
term "disability" shall mean "permanent and total disability" as defined in 
Section 22(e)(3) of the Code or successor statute.

     11.  ASSIGNABILITY.  Except for Options which may be transferred for 
estate planning purposes to the extent provided in the instrument or 
agreement granting such Options, no Stock Right shall be assignable or 
transferable by the grantee except by will or by the laws of descent and 
distribution, and during the lifetime of the grantee each Stock Right shall 
be exercisable only by him. No Stock Right, nor the right to exercise any 
portion thereof, shall be subject to execution, attachment, or similar 
process, assignment, or any other alienation or hypothecation. Upon any 
attempt so to transfer, assign, pledge, hypothecate, or otherwise dispose of 
any Stock Right, or of any right or privilege conferred thereby, contrary to 
the provisions thereof or hereof or upon the levy of any attachment or 
similar process upon any Stock Right, right or privilege, such Stock Right 
and such rights and privileges shall immediately become null and void. The 
foregoing shall not be construed to restrict the ability to assign or 
transfer shares of Common Stock issued upon the exercise or award of a Stock 
Right to the extent that the instrument or agreement granting such Stock 
Right permits such assignment or transfer.

     12.  TERMS AND CONDITIONS OF STOCK RIGHTS. Stock Rights shall be 
evidenced by instruments (which need not be identical) in such forms as the 
Committee may from time to time approve. Such instruments shall conform to 
the terms and conditions set forth in paragraphs 6 through 11 hereof to the 
extent applicable and may contain such other provisions as the Committee 
deems advisable which are not inconsistent with the Plan. Without limiting 
the foregoing, such provisions may include transfer restrictions, rights of 
refusal, vesting provisions, and repurchase rights with respect to shares of 
Common Stock issuable upon exercise of Stock Rights, and such other 
restrictions applicable to shares of Common Stock issuable upon exercise of 
Stock Rights as the Committee may deem appropriate. The Committee may from 
time to time confer authority and responsibility on one or more of its own 
members and/or one or more officers of the Company to execute and deliver 
such instruments. The proper officers of the Company are authorized and 
directed to take any and all action necessary or advisable from time to time 
to carry out the terms of such instruments.

     13.  ADJUSTMENTS. Upon the occurrence of any of the following events, an 
individual's rights with respect to Stock Rights granted to him hereunder 
shall be adjusted as hereinafter provided, unless otherwise specifically 
provided in the written agreement between the optionee and the Company 
relating to such Stock Right:

         A.  CAPITALIZATION ADJUSTMENTS. If any change is made in the Common 
Stock subject to the Plan, or subject to any Stock Rights, without the 
receipt of consideration by the Company (through merger, consolidation, 
reorganization, recapitalization, reincorporation, stock dividend, dividend 
in property other than cash, stock split, liquidating dividend, combination 
of shares, exchange of shares, change in corporate structure or other 
transaction not involving the receipt of consideration by the Company), the 
Plan will be appropriately adjusted in the class(es) 


                                       5.


<PAGE>

and maximum number of securities subject to the Plan pursuant to subsection 4 
and the outstanding Stock Rights will be appropriately adjusted in the 
class(es) and number of securities and price per share of Common Stock 
subject to such outstanding Stock Rights. The Board shall make such 
adjustments, and its determination shall be final, binding and conclusive. 
(The conversion of any convertible securities of the Company shall not be 
treated as a transaction "without receipt of consideration" by the Company.)

         B.  DISSOLUTION OR LIQUIDATION. In the event of a dissolution or 
liquidation of the Company, then all outstanding Stock Rights shall terminate 
immediately prior to such event.

         C.  CERTAIN CHANGES IN CONTROL. In the event of (i) a sale, lease or 
other disposition of all or substantially all of the assets of the Company, 
(ii) a merger or consolidation in which the Company is not the surviving 
corporation or (iii) a reverse merger in which the Company is the surviving 
corporation but the shares of Common Stock outstanding immediately preceding 
the merger are converted by virtue of the merger into other property, whether 
in the form of securities, cash or otherwise (collectively, a "Change in 
Control" or "Corporate Transaction"), then any surviving corporation or 
acquiring corporation may assume or continue any Stock Rights outstanding 
under the Plan or may substitute similar stock awards (including an award to 
acquire the same consideration paid to the shareholders in the transaction 
described in this subsection 13C) for those outstanding under the Plan. In 
the event any surviving corporation or acquiring corporation refuses to 
assume or continue such Stock Rights or to substitute similar stock awards 
for those outstanding under the Plan, then with respect to Stock Rights held 
by participants whose Service has not terminated, the vesting of such Stock 
Rights (and, if applicable, the time during which such Stock Rights may be 
exercised) shall be accelerated in full, and the Stock Rights shall terminate 
if not exercised (if applicable) at or prior to such event. With respect to 
any other Stock Rights outstanding under the Plan, such Stock Rights shall 
terminate if not exercised (if applicable) prior to such event.

         D.  TERMINATION OF SERVICE FOLLOWING A CHANGE IN CONTROL. Unless 
otherwise specified in the applicable Stock Rights Agreement, in the event of 
the occurrence of a Change in Control and provided that a participant's Stock 
Right remains in effect following such Change in Control or is assumed, 
continued or substituted for any similar stock award in connection with the 
Change in Control, then, if such participant's Service is terminated by the 
Company without Cause within thirteen (13) months following the effective 
date of the Change in Control, all Stock Rights held by such participant (or 
any substituted stock awards) shall, as of the date of such termination of 
Service, vest in full and become fully exercisable (if applicable) to the 
extent not previously vested or exercisable. Such Stock Rights shall remain 
exercisable until they expire in accordance with their terms.

     The term "Cause" shall have such meaning as is defined in the grantee's 
employment or consulting agreement with the Company or a Related Corporation. 
If the grantee does not have an employment or consulting agreement with the 
Company or a Related Corporation, or if such agreement does not define the 
term "cause," then the term "cause" shall mean: (i) misconduct or dishonesty 
that materially adversely affects the Company or a Related Corporation, 
including without limitation (A) an act materially in conflict with the 
financial interests of the Company or a Related Corporation, (B) an act that 
could damage the reputation or customer relations of the Company or a Related 
Corporation, (C) an act that could subject the Company or a Related 


                                      6.


<PAGE>

Corporation to liability, (D) an act constituting sexual harassment or other 
violation of the civil rights of coworkers, (E) failure to obey any lawful 
instruction of the Board or any officer of the Company or of a Related 
Corporation and (F) failure to comply with, or perform any duty required 
under, the terms of any confidentiality, inventions or non-competition 
agreement the grantee may have with the Company or a Related Corporation, or 
(ii) acts constituting the unauthorized disclosure of any of the trade 
secrets or confidential information of the Company or a Related Corporation, 
unfair competition with the Company or a Related Corporation or the 
inducement of any customer of the Company or a Related Corporation to breach 
any contract with the Company or a Related Corporation. The right to exercise 
any Option shall be suspended automatically during the pendency of any 
investigation by the Board or its designee, and/or any negotiations by the 
Board or its designee and the grantee, regarding any actual or alleged act or 
omission by the grantee of the type described in this section.

     The term "Service" means the performance of services for the Company or 
a Related Corporation by an individual. An individual shall be deemed to 
remain in Service for so long as such individual renders services to the 
Company or a Related Corporation on a periodic basis in the capacity of an 
employee or an independent consultant or advisor.

         E.  SECURITIES ACQUISITION. In the event of an acquisition by any 
person, entity or group within the meaning of Section 13(d) or 14(d) of the 
Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable 
successor provisions (excluding any employee benefit plan, or related trust, 
sponsored or maintained by the Company or an Affiliate) of the beneficial 
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange 
Act, or comparable successor rule) of securities of the Company representing 
at least fifty percent (50%) of the combined voting power entitled to vote in 
the election of Directors, then with respect to Stock Rights held by 
participants whose Service has not terminated, the vesting of such Stock 
Rights (and, if applicable, the time during which such Stock Rights may be 
exercised) shall be accelerated in full. Such Stock Rights shall remain 
exercisable until they expire in accordance with their terms.

         F.  PARACHUTE PAYMENTS. If any payment or benefit participant would 
receive in connection with a Change in Control from the Company or otherwise 
("Payment") would (i) constitute a "parachute payment" within the meaning of 
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), 
and (ii) but for this sentence, be subject to the excise tax imposed by 
Section 4999 of the Code (the "Excise Tax"), then such Payment shall be 
reduced to the Reduced Amount. The "Reduced Amount" shall be either (x) the 
largest portion of the Payment that would result in no portion of the Payment 
being subject to the Excise Tax or (y) the largest portion, up to and 
including the total, of the Payment, whichever amount, after taking into 
account all applicable federal, state and local employment taxes, income 
taxes, and the Excise Tax (all computed at the highest applicable marginal 
rate), results in paraticipant's receipt, on an after-tax basis, of the 
greater amount of the Payment notwithstanding that all or some portion of the 
Payment may be subject to the Excise Tax. If a reduction in payments or 
benefits constituting "parachute payments" is necessary so that the Payment 
equals the Reduced Amount, reduction shall occur in the following order 
unless the participant elects in writing a different order (provided, 
however, that such election shall be subject to Company approval if made on 
or after the effective date of the Change of Control): reduction of cash 
payments; cancellation of accelerated vesting of stock awards; reduction of 
employee benefits. In the event 


                                      7.


<PAGE>

that acceleration of vesting of stock award compensation is to be reduced, 
such acceleration of vesting shall be cancelled in the reverse order of the 
date of grant of the participant's stock awards unless the participant elects 
in writing a different order for cancellation.

     The accounting firm engaged by the Company for general audit purposes as 
of the day prior to the effective date of the Change in Control shall perform 
the foregoing calculations. If the accounting firm so engaged by the Company 
is serving as accountant or auditor for the individual, entity or group 
effecting the Change in Control, the Company shall appoint a nationally 
recognized accounting firm to make the determinations required hereunder. The 
Company shall bear all expenses with respect to the determinations by such 
accounting firm required to be made hereunder.

     The accounting firm engaged to make the determinations hereunder shall 
provide its calculations, together with detailed supporting documentation, to 
the Company and participant within fifteen (15) calendar days after the date 
on which participant's right to a Payment arises (if requested at that time 
by the Company or participant) or at such other time as requested by the 
Company or participant. If the accounting firm determines that no Excise Tax 
is payable with respect to a Payment, either before or after the application 
of the Reduced Amount, it shall furnish the Company and participant with an 
opinion reasonably acceptable to participant that no Excise Tax will be 
imposed with respect to such Payment. Any good faith determination of the 
accounting firm made hereunder shall be final, binding and conclusive upon 
the Company and participant.

         G.  ISSUANCES OF SECURITIES AND NON-STOCK DIVIDENDS. Except as 
expressly provided herein, no issuance by the Company of shares of stock of 
any class, or securities convertible into shares of stock of any class, shall 
affect, and no adjustment by reason thereof shall be made with respect to, 
the number or price of shares subject to Options. No adjustments shall be 
made for dividends paid in cash or in property other than securities of the 
Company (and, in the case of securities of the Company, such adjustments 
shall be made pursuant to the foregoing subparagraph A).

         H.  FRACTIONAL SHARES. No fractional shares shall be issued under 
the Plan, and the optionee shall receive from the Company cash in lieu of 
such fractional shares.

         I.  ADJUSTMENTS. Upon the happening of any of the foregoing events 
described in subparagraphs A, B or C above, the class and aggregate number of 
shares set forth in paragraph 4 hereof that are subject to Stock Rights which 
previously have been or subsequently may be granted under the Plan shall also 
be appropriately adjusted to reflect the events described in such 
subparagraphs. The Committee or the board of directors of the surviving 
entity shall determine the specific adjustments to be made under this 
paragraph 13 and its determination shall be conclusive.

     If any person or entity owning Common Stock obtained by exercise of a 
Stock Right made hereunder receives shares or securities or cash in 
connection with a corporate transaction described in this section as a result 
of owning such Common Stock, such shares or securities or cash shall be 
subject to all of the conditions and restrictions applicable to the Common 
Stock 


                                       8.


<PAGE>

with respect to which such shares or securities or cash were issued, unless 
otherwise determined by the Committee or the Board of Directors of the 
surviving entity.

         J.  POOLING-OF-INTERESTS ACCOUNTING. If the Company proposes to 
engage in a Corporate Transaction or Change in Control intended to be 
accounted for as a pooling-of-interests, and in the event that the provisions 
of this Plan or of any agreement hereunder, or any actions of the Board taken 
in connection with such Corporate Transaction or Change in Control, are 
determined by the Company's or the surviving entity's independent public 
accountants to cause such Change in Control or Corporate Transaction to fail 
to be accounted for as a pooling-of-interests, then such provisions or 
actions may be amended or rescinded at the election of the Committee, without 
the consent of any grantee, to be consistent with pooling-of-interests 
accounting treatment for such Corporate Transaction or Change in Control.

     14.  MEANS OF EXERCISING OPTIONS. An Option (or any part or installment 
thereof) shall be exercised by giving written notice to the Company at its 
principal office address. Such notice shall identify the Option being 
exercised and specify the number of shares as to which such Option is being 
exercised, accompanied by full payment of the purchase price therefor either 
(a) in United States dollars in cash or by check, or (b) at the discretion of 
the Committee, by delivery of an irrevocable and unconditional undertaking, 
satisfactory in form and substance to the Company, by a creditworthy broker 
to deliver promptly to the Company sufficient funds to pay the exercise 
price, or delivery to the Company of a copy of irrevocable and unconditional 
instructions, satisfactory in form and substance to the Company, to a 
creditworthy broker to deliver promptly to the Company cash or a check 
sufficient to pay the exercise price, or (c) at the discretion of the 
Committee through delivery of shares of Common Stock having a fair market 
value equal as of the date of the exercise to the cash exercise price of the 
Option, provided, however, that such shares of Common Stock delivered must 
have been acquired by the holder of the Option more than six months prior to 
the exercise of the Option, or (d) at the discretion of the Committee, by 
delivery of the grantee's personal recourse note bearing interest payable not 
less than annually at no less than 100% of the applicable Federal rate, as 
defined in Section 1274(d) of the Code, or (e) at the discretion of the 
Committee, by any combination of (a), (b) (c) and (d) above. The holder of an 
Option shall not have the rights of a shareholder with respect to the shares 
covered by his Option until the date of issuance of a stock certificate to 
him for the shares subject to the Option. Except as expressly provided above 
in paragraph 13 with respect to changes in capitalization and stock 
dividends, no adjustment shall be made for dividends or similar rights for 
which the record date is before the date such stock certificate is issued.

     15.  TERM AND AMENDMENT OF PLAN. The Plan shall expire on June 28, 2009 
(except as to Options outstanding on that date). The Board may terminate or 
amend the Plan in any respect at any time; provided, however that Stock 
Rights outstanding on such date shall not be affected by the termination of 
the Plan.

     16.  SECTION 162(m): Section 162(m) does not apply to grants of Stock 
Rights under this Plan.

     17.  AMENDMENT OF STOCK RIGHTS. The Board or Committee may amend, modify 
or terminate any outstanding Stock Rights including, but not limited to, 
substituting therefor another Stock Right of the same or a different type, 
and changing the date of exercise or 


                                       9.


<PAGE>

realization, provided, that, except as otherwise provided in paragraphs 9 or 
10, the grantee's consent to such action shall be required unless the Board 
or Committee determines that the action, taking into account any related 
action, would not materially and adversely affect the grantee.

     18.  APPLICATION OF FUNDS. The proceeds received by the Company from the 
sale of shares pursuant to Options granted and Restricted Stock Purchases 
authorized under the Plan shall be used for general corporate purposes.

     19.  GOVERNMENTAL REGULATION. The Company's obligation to sell and 
deliver shares of the Common Stock under this Plan is subject to the approval 
of any governmental authority required in connection with the authorization, 
issuance or sale of such shares.

     20.  WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a 
Non-Qualified Option, the making of a Restricted Stock Purchase for less than 
its fair market value, the granting of an Award, or the vesting of restricted 
Common Stock acquired on the exercise of a Stock Right hereunder, the 
Company, in accordance with Section 3402(a) of the Code, may require the 
grantee or purchaser to pay additional withholding taxes in respect of the 
amount that is considered compensation includible in such person's gross 
income. The Committee in its discretion may condition (i) the exercise of an 
Option, (ii) the making of a Restricted Stock Purchase for less than its fair 
market value, (iii) the granting of an Award, or (iv) the vesting of 
restricted Common Stock acquired by exercising a Stock Right, on the 
grantee's payment of such additional withholding taxes.

     21.  GOVERNING LAW; CONSTRUCTION. The validity and construction of the 
Plan and the instruments evidencing Options shall be governed by the laws of 
the state of Washington. In construing this Plan, the singular shall include 
the plural and the masculine gender shall include the feminine and neuter, 
unless the context otherwise requires.


                                       10.



<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               SEP-30-2000
<CASH>                                          79,904
<SECURITIES>                                   164,356
<RECEIVABLES>                                   14,668
<ALLOWANCES>                                       764
<INVENTORY>                                          0
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